Transfer Pricing in Brazil

Transfer Pricing in Brazil: Legislation, MP (Medida Provisória – Provisional Measure), Concept, Accounting

Brazilian Transfer Pricing Legislation: Receita Federal (Inland Revenue)

The Transfer Pricing legislation in Brazil (Preços de Transferência no Brasil) began in the mid-1990s due to the growth of large multinational companies therein.

These rules were incorporated by Law No. 9430 of 1996, which is based on the guidelines established by the Organization for Economic Cooperation and Development (OECD). Conversely, there were its own particularities, which, in turn, resulted in divergences regarding the model proposed by the OECD.

In 2019, Brazil adopted a perspective open to further improvements through roundtable discussions on the adoption of new Transfer Pricing rules in the country that would be aligned with international standards. On December 18 of that year, the Receita Federal (Inland Revenue), jointly with the OECD, published a report on the Transfer Pricing application, which pointed out the major divergences between both.

Regulatory Transfer Pricing Instruction through the MP (Medida Provisória – Provisional Measure)

On April 12, 2022, the RFB (Receita Federal do Brasil – Brazilian Inland Revenue) and the OECD held a public meeting and explained the main reasons for the decision-making process to achieve full alignment with the OECD standards. In the same year, a new legal framework for Transfer Pricing rules in the country was established through Provisional Measure No. 1,152/22, published on December 28, 2022.

Subsequently, on June 14, 2023, Law No. 14,596/23 was approved, after the approval of the President of the Republic, with no amendments to the text approved by the Senate. On June 15, 2023, this law was published in the Brazilian Official Gazette.

Transfer Pricing in the Brazilian Tax Law

The Receita Federal may open public consultation in the coming weeks on the practical application of these new rules.

This new Transfer Pricing application model in the country complies with the Guidelines established by the OECD. In this regard, it aims to incorporate Brazil into global value chains and mitigate cases of double taxation.

Although it may be implemented by taxpayers optionally as of this year, this will change next year, given that the model will be mandatory for all taxpayers as of January 2024. Between September 1 and 30, these will be able to choose this option before the Receita Federal do Brasil.

How to Calculate Transfer Prices?: Transfer Pricing Methodology, OECD

The recently approved Brazilian Transfer Pricing system allowed taxpayers to select the method to be applied (the best method approach), provided that such choice involved one of the methodologies established by law.

• Comparable Uncontrolled Price Method
• Cost Plus Method
• Resale Price Method
• Transactional Net Margin Method
• Profit Split Method

Prior to the reform, the approved methods were used to prescribe predetermined fixed margins that applied to all taxpayers. Now, this considers applicable the methods recognized in the OECD Guidelines instead of the preset margins and returns.

These amendments improve practicality, predictability, and tax reliability.

Comparability Analysis: New Transfer Pricing System

It requires that the analysis of related party transactions include a comparability analysis, functional analysis, and comparative economic analysis, as well as the existence of specific documentation, instead of the calculation of current margins and returns.