The adoption of Brazil’s new Transfer Pricing regime marked one of the most significant changes in international taxation in Latin America. With the entry into force of Law No. 14,596/2023 and RFB Normative Instruction No. 2,161/2023, Brazil moved away from a system based on predetermined margins to fully adopt the arm’s-length principle, aligning itself with the Guidelines of the Organization for Economic Cooperation and Development (OECD).
Now, during the second year of mandatory application of the new regime, multinational companies face a scenario that goes beyond formal compliance. The experience gained during the first implementation cycle has highlighted new challenges related to documentation, economic analysis, and tax risk management.
From Regulatory Compliance to Strategic Risk Management
The former Brazilian model was characterized by objective rules and specific methodologies that, while simplifying the calculation of Transfer Pricing, deviated from international standards.
With the adoption of the arm’s-length principle, companies must demonstrate that the terms agreed upon between related parties reflect those that would have been agreed upon between independent companies under comparable circumstances.
This change has significantly increased the importance of aspects such as functional analysis, the identification of risks assumed by each entity, the selection of reliable comparables, and the preparation of technically sound economic studies.
Consequently, Transfer Pricing documentation is no longer a merely formal requirement but has become a fundamental element of management and defense against potential tax audits.
The Quality of Economic Analysis Takes Center Stage
One of the key lessons learned during the first year of the new regime’s implementation has been the need to strengthen comparability analyses.
The proper selection of comparable companies, the use of consistent financial information, and the adequate justification of economic adjustments are now critical factors in demonstrating compliance with the arm’s-length principle.
Likewise, companies must evaluate in greater detail transactions that previously received less attention, such as intra-group services, financial transactions, the use of intangible assets, and corporate reorganizations.
In this context, economic analysis is no longer merely a supplementary document but has become one of the main elements of assessment by the tax authorities.
Greater Convergence with International Practices
The harmonization of the Brazilian regime with the OECD Guidelines also facilitates coordination between Brazil and other jurisdictions that already apply the arm’s-length principle.
This represents an opportunity for multinational groups by allowing for greater consistency in the documentation prepared in different countries, especially regarding the Master File, the Local File, and the global value chain analysis.
However, it also implies a higher level of technical rigor, as internal Transfer Pricing policies must demonstrate economic consistency across all jurisdictions where the corporate group operates.
What should companies consider during this second year?
The experience gained during the first phase of implementation allows us to identify some priorities for companies with operations in Brazil:
- Periodically review their Transfer Pricing policies.
- Update functional and risk analyses.
- Strengthen the quality of comparability studies.
- Properly document transactions with related parties before the fiscal year-end.
- Monitor potential discrepancies between financial results and market conditions to reduce tax contingencies.
Adopting a preventive approach will enable companies to respond more effectively to potential requests from the Brazilian Federal Revenue Service (Receita Federal do Brasil) and reduce the risk of future adjustments.
Brazil’s transition to a regime fully aligned with the OECD Guidelines represents much more than a regulatory reform. The second year of implementation confirms that successful compliance no longer depends solely on applying a specific methodology, but on demonstrating—through robust economic evidence and high-quality technical documentation—that transactions between related parties adhere to the arm’s-length principle.
For multinational companies, this new landscape demands a strategic approach to Transfer Pricing, where prevention, consistent documentation, and economic analysis play a central role in tax risk management.
At TPC Group, we have a team specializing in Transfer Pricing that advises domestic and multinational companies on implementing the new Brazilian regime, preparing documentation in accordance with OECD standards, conducting comparability analyses, and handling tax audits and disputes in Brazil and throughout Latin America.
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