The Brazilian Federal Revenue Service (RFB, by its Spanish acronym) established in COSIT Consultation Ruling No. 56/2026 that Limited Liability Companies (LLCs) incorporated in the United States whose members are non-U.S. residents (including Brazilian tax residents) and that are treated as transparent entities (pass-through) under U.S. law are subject to a preferential tax regime. The consultation originated in the context of individual income tax, but its effect extends to Transfer Pricing in Brazil. Brazilian law applies transfer pricing rules to transactions with beneficiaries of preferential tax regimes, even when there is no related-party relationship.
What did the Federal Revenue Service state in COSIT 56/2026?
The General Taxation Coordination Office (COSIT, by its Portuguese acronym) concluded that “LLCs whose ownership structure consists of individuals not resident in the United States of America and that are considered transparent entities under U.S. tax law” (own translation) are subject to a preferential tax regime. The basis for this is subsection VII of Article 2 of RFB Normative Instruction No. 1,037/2010, which expressly includes state LLCs with nonresident members that are not subject to federal income tax.
It should be noted that the Federal Revenue Service did not accept the argument that the taxation of members in the United States precludes such classification. The interpretation is structural: what is decisive is the legal form and its tax treatment in the United States, not the tax burden actually borne in a given fiscal year. The judgment cites Articles 24 and 24-A of Law No. 9,430/1996 as legal provisions, precisely the rules that link this classification to the transfer pricing regime.
Why does this matter for transfer pricing?
Article 40 of Law No. 14,596/2023 amended Article 24-A of Law No. 9,430/1996. Since then, transfer pricing rules have applied to transactions with “any entity resident or domiciled abroad that benefits from a preferential tax regime, even in the case of an unrelated party” (own translation). Article 24 provides the same scope for entities in countries that do not tax income or tax it at a maximum rate of less than 17%.
The consequence is clear. Under the Brazilian regime, the starting point for the analysis is not limited to corporate affiliation. If the counterparty is an LLC with the characteristics described in COSIT 56/2026, the transaction is treated as a controlled transaction even if there is no relationship between the parties. The Brazilian company must therefore demonstrate that the agreed-upon price is consistent with the arm’s-length principle under Law No. 14,596/2023.
Which transactions are subject to these requirements?
The exposure does not depend on the type of transaction, but rather on the counterparty’s rating. This may apply to imports and exports of goods, the provision or contracting of services, licenses for intangible assets, and loans involving an LLC that meets the conditions set forth in COSIT 56/2026. This includes suppliers, distributors, or creditors with no corporate relationship to the Brazilian company.
The first challenge is informational. To determine whether a counterparty qualifies, the Brazilian company needs to know the residence of the LLC’s partners and their tax treatment in the United States. An independent third party does not typically provide this information, and without it, it is not possible to definitively identify the scope of controlled transactions.
The second challenge is technical. In a transaction with a third party, the price results from negotiations between parties with opposing interests. That negotiation is a relevant comparability factor, but it must be documented with the same rigor as an intra-group transaction to ensure its consistency with the arm’s-length principle.
How does this differ from the taxation of partners?
Most of the coverage of COSIT 56/2026 has focused on individuals residing in Brazil who are partners in LLCs. In this regard, Law No. 14,754/2023 applies, which imposes an annual tax on the earnings of entities controlled abroad. As noted in the analysis published in Migalhas, this law reduces the significance of the classification as a preferential tax regime for partners.
However, for companies that do business with these LLCs, the classification retains its full effect.
The transfer pricing regime does not depend on the existence of control or equity participation: it is sufficient that the counterparty benefits from a preferential tax regime. These are two distinct consequences of the same criterion, and it is appropriate to analyze them separately.
COSIT 56/2026 effectively expands the scope of controlled transactions for Brazilian companies that do business with U.S. LLCs. A transaction with an independent third party may require an arm’s-length justification if the counterparty meets the conditions set forth in subsection VII of Article 2 of IN RFB No. 1,037/2010. Identifying such counterparties is now part of the scope of transfer pricing analysis in Brazil.
At TPC Group, we evaluate—in every Transfer Pricing analysis in Brazil—the tax status of foreign counterparties, not just their corporate affiliation. Our goal is to correctly define controlled transactions and demonstrate their consistency with the arm’s-length principle under Law No. 14,596/2023.