Guide to the New Transfer Pricing Regime in Brazil

April 18, 2022

The RFB (Receita Federal do Brasil – Federal Revenue of Brazil/Brazilian IRS) or Brazilian Tax Authority, along with the OECD Transfer Pricing Guidelines, presented the standards for the new Transfer Pricing regime to be implemented locally. In this regard, the main characteristics will be analyzed to carry out this policy.

1. Details of the New Legislation

The Arm’s Length Principle will be the cornerstone of this new legislation, aligned with the OECD Transfer Pricing Guidelines. Likewise, it describes specific types of transactions and methods; therefore, the system based on the OECD principles and the legal security of the Brazilian Constitution must be balanced.

Transactional profit methods, such as the Transactional Net Margin (TNM) and the Profit Split methods, will be allowed, as well as implementing other methods, such as the valuation of intangibles. The determination will depend on the availability of documentation.

2. Comparability Analysis in Transfer Pricing

Comparability will be a milestone of the new system, needing the guidance of the Tax Authority. Likewise, the new features suggest primary and secondary adjustments, which are significant for Brazil, given that these have never been allowed before.

Commodity transactions will be tested under the OECD guidelines, expanding comparability adjustments to capture the actual market value of the commodity. A DEMPE analysis for the allocation of income and expenses, a definition of intangibles for Transfer Pricing, valuation methods, and guidance on the treatment of uncertainties will be provided.

In addition, the current limitations on deductibility will be analyzed, acting as an anti-abuse mechanism and interacting with the Arm’s Length Principle.

3. Intragroup Services

Intragroup services will be those representing a significant development. The situations with an in/appropriate service collection will be established. Those inappropriate are usually related to shareholder activities or a duplicate service.

Direct or indirect allocation keys can be employed, considering a “safe harbor” for low-value-added services. Cost contribution agreements for research and development and services will also receive special consideration, including the determination of adequate compensation.

4. Financial Transactions

Financial transactions will also be considered. The deduction of interests follows a basic rule, usually LIBOR (London Interbank Offered Rate) plus 3.5% for most cases.

On the other hand, another key point is dispute prevention, in which the RFB will be authorized to enter into advance pricing agreements. Thus, as related measures, ongoing work for determining Amount B of Pillar One has been mentioned.

In Brazil, a Master File and Local Report are not mandatory, given that these are included in the SPED (Sistema Público de Escrituração Digital – Public Digital Bookkeeping System) file (corresponding to the tax return). Conversely, this documentation and the Country-by-Country Report will be required.


Source: Mne Tax 18/04/22