Brazil and OECD: Transfer Pricing Convergence?

December 9, 2020

Transfer pricing legislation in Brazil was established in the mid-1990s, through the incorporation of Law No. 9430 of 1996, which, although it bears some resemblance to OECD guidelines, has many particularities.

Since its incorporation, the Brazilian legislation on the matter has been characterized by trying to give simplicity both to the taxpayer and to the Tax Administration (Receita Federal do Brasil), for instance through the incorporation of safe harbours. However, it has also had certain shortcomings in terms of its minimum and maximum parameters in the methodology, which means that these do not take into account the particularities of each operation.

Under this scenario, Brazil has been working in recent years on a possible convergence between its transfer pricing legislation and the Transfer Pricing Guidelines published by the Organization for Economic Cooperation and Development (OECD).

Towards a convergence with the OECD guidelines

Since 2018, Brazil and the OECD have jointly implemented a plan that aligns the country with the Transfer Pricing Guidelines, especially with respect to the arm’s length principle.

As part of these discussions between Brazil and the OECD, the latter proceeded to evaluate the entire Brazilian tax regime, with emphasis on transfer pricing. As a result of this detailed analysis, the report “Transfer Pricing in Brazil: Towards Convergence with the OECD Standard” was issued on December 18, 2019.

In this way, Brazil would follow the trend of the other countries in the region in this area, which would also help it in the face of the possible incorporation of this country to that organization and would increase its integration and openness to other countries.

Stages of the OECD project

The report presented by the OECD and jointly worked with the Receita Federal do Brasil, segments the project in three stages:

  1. A first stage corresponding to a preliminary analysis, in which a description of the transfer pricing standard according to OECD is made, the origins of the Brazilian legislation in this matter are described and a description of the project stages with OECD is made.
  2. A second stage, in which the strengths and weaknesses of transfer pricing in Brazil are evaluated.
  3. A third stage of alignment options for transfer pricing rules in Brazil according to the OECD standard.

About the results of the evaluation of Brazil

After an analysis of the Brazilian transfer pricing legislation, the following results were reached:

  1. Presence of divergences and absence of legislation lead in some scenarios to double taxation, which generates an obstacle to investments by multinational companies.
  2. The gaps found between the OECD standards and the Brazilian legislation lead to certain risks of erosion of the base and transfer of profits (BEPS), especially in relation to special considerations on issues such as intangibles, intra-group services, corporate restructuring, among others.
  3. The current system in Brazil would be favoring some categories of taxpayers and being conducive to tax planning.
  4. The Brazilian legislation on transfer pricing gives practicality and ease to the Tax Administration and tax compliance, this system has always been characterized in giving certainty to the taxpayer. However, this simplicity in such system may be relative, due to the complexity of other characteristics.
  5. The fixed margins proposed by Brazil turn out to be rigid, which may lead taxpayers to apply excessively high margins depending on the assumption or allows very low margins in others.
  6. Also, these margins, although practical, may produce inappropriate results, since they are based on mathematical formulas that would not take into account the circumstances of each transaction.
  7. The choice of any method by the taxpayer, while it may give simplicity, can generate that the taxpayer chooses the one that provides a better tax result.
  8. The application of Safe Harbour or safe ports like the one for exports, in which it is required that the export price be at least 90% of the domestic market price so that transfer pricing documentation is not required, may lead to inappropriate results. This is based on a comparison of the domestic market, when in the foreign market profits may vary depending on certain factors.

Differences found between OECD and Brazilian standards

Among the main differences found are the following:

  1. Absence of the concept of the arm’s length principle or of full competition within the Brazilian transfer pricing legislation.
  2. Absence of the notion of real delineation of the operation subject to transfer pricing.
  3. The use of fixed margins leads to results not in accordance with the arm’s length principle.
  4. Lack of a complete comparability analysis.
  5. Limited comparability adjustments.
  6. Absence of the net transaction margin method and the Profit Split method.
  7. Deficiencies in the established safe harbours.
  8. Absence of special rules for transactions as intangibles.
  9. Absence of the profit test for Intragroup services.
  10. Poor documentation of transfer pricing and penalties.
  11. Absence of dispute resolution mechanisms.

Proposals for convergence

Two types of actions were proposed in order to align the Brazilian regime with the OECD standard:

  • Immediate alignment: As indicated in this proposal, we will seek to align transfer pricing legislation immediately with the Brazilian standard, including the principle of full competition.
  • Gradual Alignment: The process should be structured in certain stages, prioritizing the needs according to the tax structure in Brazil, administrative aspects, among others; conditions could also be established so that taxpayers of multinational groups migrate to this new system in the short term.

In principle, a partial or dual system was also proposed, in which only certain areas would be aligned or certain rules of the previous regime would coexist, but this would still mean the existence of certain gaps and double taxation.


There is no doubt that Brazil’s possible convergence with the OECD guidelines was a milestone for this country, which had long departed, in certain respects, from the trend of the region’s countries.

The incorporation of the OECD Guidelines on transfer pricing will make it easier for Brazil to join this organization and give it greater certainty from an international perspective.