Impact of Brazil-Arab Emirates Relations Regarding the Transfer Pricing Law

June 7, 2023

According to the Agency of News from Brasil-Arab (ANBA), after the visit of the President of the Republic of Brazil to the United Arab Emirates, the commercial relationship between the countries was strengthened after years of constant growth. Due to this, an upcoming Transfer Pricing change will particularly affect Brazilian trade with the United Arab Emirates, Oman, and Bahrain. 

1. Background

On May 5, 2023, the Brazilian Federal Senate approved Provisional Measure 1.152/2022 as Conversion Bill 8/2023 to align the Brazilian Transfer Pricing legislation with the requirements established by the Organization for Economic Cooperation and Development (OECD).   

Historically, this legislation has been used in Brazil to adjust the basis for calculating taxes levied on profits; Conversely, the Transfer Pricing system has recently been used to determine the customs value. According to the regulatory ruling, 2090/2022 and a recent decision of the CARF (Conselho Administrativo de Recursos Fiscais – Administrative Council of Tax Appeals), the Transfer Pricing legislation is also currently applied in cases where a relationship between importer and exporter is verified or assumed. It may occur if other methods are not applicable to measure the value of the transaction. 

2. Main Modifications

Under the terms of the interim measure, the modifications will be optional by 2023 and mandatory by 2024. The regulations will apply to (i) related party transactions and (ii) transactions with entities domiciled in jurisdictions with low or no taxation and/or legislation preventing the assessment of the corporate structure. The jurisdictions included in the second group are listed in Article 1 of Regulatory Instruction 1.037/2010, including the United Arab Emirates, Oman, and Bahrain. 

3. Positive Response

The possibility of using a system closer to actual market values is positive insofar as it implies a lower probability the taxpayer will be taxed with generic indicators.   

Conversely, there is a cost to this. The current pricing system is far from simple, and its correct operation usually requires hiring a specialized consulting team. Based on these considerations, the proposed new methodology is more complex.  

Based on the above, we consider that the approval of Provisional Measure 1,152/2022 may represent vital tax progress for Brazil-Arab trade. Conversely, taxpayers must understand and correctly use the features of this new system to make it a reality. 

Source: ANBA 07/06/23