22 de June de 2023

The new Brazilian Transfer Pricing rules were converted into Law

On June 15, Law No. 14,596/2023 was published, converting Provisional Measure No. 1,152/2022, introducing new transfer pricing rules aligned with international standards into the Brazilian tax system.

According to the new Law, the terms and conditions of a controlled transaction will be defined based on those established between unrelated parties in comparable transactions, following the Arm’s Length Principle, which assumes the effective pursuit of market conditions based on a functional analysis. It is necessary to delineate the controlled transaction and the comparability analysis to determine whether the terms and conditions of the controlled transaction comply with this principle.

Thus, Brazilian multinational companies must comply with the new guidelines aligned with the Organization for Economic Cooperation and Development (OECD) standards in their transfer pricing operations. The new rules will become mandatory for all taxpayers starting from January 1, 2024, but it is possible to anticipate their application to 2023.

The presidential sanction occurred without vetoes to the previous text approved by Congress, maintaining the changes made to the original wording, of which the following stand out:

  • Exclusion of “secondary adjustments” (mechanisms to avoid double taxation treated as presumed loans, compensated by the fixed interest of 12% per year);
  • Removal of the restriction on the deductibility of royalties paid to beneficiaries domiciled in tax havens (in the original text, payments made to tax havens, understood as jurisdictions that tax income at a rate lower than 17%, would be non-deductible without any margin for proving their compliance with the Arm’s Length Principle); and
  • The CUP method was made more flexible for operations with commodities.

The Federal Revenue Service shall soon publish a Normative Instruction (IN) regulating the matter. IN No. 2,132/2023, published on February 24, 2023, only established the guidelines for the early application of the new rules in 2023, which must be formalized from September 1 to September 30, 2023.

Our team closely monitors all tax changes. We are available to provide clarifications on this and other topics.

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