Transfer Pricing in Brazil

Brazil is the only country in South America that has particularities in its Transfer Pricing Legislation, by not following the model outlined by the OECD. Nevertheless, it is increasingly preparing for such convergence. This article presents a brief overview of the Brazilian transfer pricing legislation, including definitions, linkage rules, methodology, formal obligations and penalties for non-compliance.

Transfer Pricing legislation in Brazil was established in the mid-1990s, due to the growth of large multinational companies in this country.

These standards were incorporated by Law No. 9430 of 1996, which was designed by the guidelines established by the Organization for Economic Cooperation and Development (OECD), although it has its own particularities, which in turn have created divergences regarding to the model proposed by the OECD.

When the Brazilian transfer pricing rules were established, they have been characterized by trying to simplify for the taxpayer the valuation of its prices agreed among related parties and at the same time facilitating the Tax Administration to verify them.

Nonetheless, this regime has not undergone many changes over time and has presented certain problems, which is why in 2019 Brazil is working with the OECD on a project in order to align itself with the model proposed by this organization.


Transfer Pricing: Definition

Transfer prices or Preços de Transferência are understood to be those prices or values agreed in transactions among linked or related parties, such transactions are also referred to as intercompany transactions.


Principle of Full Competition in Brazil

The Arm’s Length principle is based on the principle that the values or considerations agreed among related parties should be in accordance with market value, i.e. as if they had been agreed among independent parties.

This principle is not expressly included in Brazilian legislation on the matter. Nonetheless, it is in fact agree according to the Explanatory Memorandum of Law No. 9430/1996.

It should be noted that this principle has nuances in this legislation, due to certain transactions that are not subject to these, such as royalties, licenses for technology transfer licenses, and other intangibles, in addition to regulating certain safe harbors for certain transactions.


Application Scope of Transfer Pricing in Brazil

According to Articles 18 and 19 of the Law, the Transfer Pricing rules shall apply to the following import and export transactions:

  1. Transactions performed with related parties, which are for the taxpayer in Brazil cost or expense related to the acquisition of goods or services and rights.
  2. Transactions performed with related parties, which are for the resident taxpayer income from the sale of goods, services, and rights.

Article 24 of the Law also states that these rules shall apply to transactions performed with a person, whether an individual or legal entity, resident in countries of tax favored or tax havens, which do not tax income or if taxed, they do so at a rate of less than 20%.


According to Article 23 of the Law, the following shall be considered related parties to the legal entity in Brazil:

  • The parent company when it is resident abroad.
  • The subsidiary or branch when domiciled abroad.
  • The person, whether natural or juridical, domiciled abroad, who owns part of the capital stock of the resident juridical person and makes the latter its controller.
  • The legal entity domiciled abroad, which is characterized as its subsidiary or affiliate, as indicated by Law No. 6,404.
  • When the legal entity resident abroad and the another one in Brazil have the same individual or legal entity controlling them socially, administratively or owns at least 10% of the capital of each of them.
  • When the legal entity domiciled abroad along the company domiciled in Brazil own a percentage of the capital stock of a third company, which makes them controlling or affiliated companies, in accordance with the provisions of Law No. 6,404.
  • The natural or legal person domiciled abroad that can be considered as an associate in a consortium or condominium, according to Brazilian legislation.
  • The natural person domiciled abroad who has a kinship relationship up to the third degree is the spouse or partner of the directors, partner, or shareholder of the legal entity resident in Brazil.
  • The exclusive agentdistributor or concessionaire, whether an individual or legal entity, resident abroad.
  • The natural or legal person resident abroad, of which the legal person resident in Brazil is the exclusive agent or distributor for the purchase and sale of goods, services or rights.

Transfer Pricing Methods in Brazil

Brazilian regulations distinguish the use of methods, depending on whether is an import or export transaction with a related party, in such a way that Articles 18 and 19 detail the following:


The following valuation methods are used for this type of transactions:
  • Independent Comparative Pricing Method (ICP): It is defined as the weighted arithmetic average of the prices of goods or services, when these are identical or similar, that can be found in the Brazilian market or in other countries under similar conditions.
  • Resale Price minus Profit Method (RPP): It is defined as the weighted arithmetic average of the sales prices of goods, rights or services in the country, in Brazil, under similar payment conditions and calculated under certain methodologies.
  • Cost of Production plus Profit Method (CPP): Refers to the weighted average cost of producing identical or similar goods, services or rights, plus the export taxes and duties charged in the country of origin plus a 20% profit margin on costs.

In addition, Article 18-A establishes a method for the case of imports of commodities, also known as the ICP Method, taking as a reference the international quotation values of unalterable contracts in the future and primary goods.



In accordance with Article 19, when the income from these transactions with related parties is less than 90% of the average price for the sale of goods, rendering of services or rights in the Brazilian market under similar conditions, any of the following methods must be used:

  • Export Sales Price Method (ESP): This is defined as the arithmetic average of the sales prices of exports made by the taxpayer to other customers, or the prices agreed by another exporter, under similar conditions, during the same period.
  • Wholesale Price in the Country of Destination minus Profit Method: This method consists of an arithmetic average of the sales pricing charged in the wholesale market of the destiny country for transactions under similar conditions, less taxes collected in that country, and a profit margin of 15% on the wholesale price.
  • Retail Price in the Destiny Country minus Profit Method: It is defined as the arithmetic average of the prices charged in the retail market of the destiny country for transactions under similar conditions, discounting the taxes charged in that country, and a profit margin of 30% of the retail price.
  • Acquisition or Production Cost plus Taxes and Profit Method (APC): This method considers the arithmetic average of acquisition or production costs, plus taxes and contributions collected in Brazil and a fifteen percent profit margin on the sum of costs plus taxes and contributions.

Safe Harbor in Brazilian Legislation

The Brazilian legislation on this matter has the particularity of presenting “safe harbors“, also known as “portos seguros“, by means of which certain margins are established. If the taxpayer is within these margins, the Federal Revenue of Brazil (RFB or Receita Federal do Brazil) would have no reason to question the established Transfer Prices.

One of these safe harbors is quoted in Article 19 of the aforementioned Law, since the valuation methodology will only be applied in export transactions when the income with related parties is less than 90% of the price of similar goods or services in the Brazilian market.

This mechanism is intended to facilitate price verification for taxpayers and the tax authority.


Transfer Pricing Affidavit and Documentation in Brazil

Brazilian Transfer Pricing legislation, unlike other Latin American legislations, has not yet introduced the first two levels of supporting documentation required by Action 13 of the BEPS (Base and Erosion and Profit ShiftingPlan, such as the Local File and the Master File.

Nonetheless, it has regulated the third level of documentation, i.e. the Country-by-Country Report (CbC Report or Relatório País por País) through Normative Instruction N°1681 issued by the RFB in December 2016.

Article 3 of this regulation states that taxpayers domiciled in Brazil that are the parent company of a multinational group are required to file this affidavit.

A member resident in Brazil of a Multinational Group will also be required to file it in case of any of the following situations:
  • The parent company is not required in its jurisdiction to file this report in its jurisdiction.
  • The parent company’s jurisdiction has signed a Exchange Agreement of Country-by-Country Report with Brazil, but does not have a Competent Authority Agreement.
  • Having these two aforementioned agreements. The jurisdiction of the parent company performs a systematic non-compliance and this is reported by RFB to the resident group member entities in the country.

The parent company resident in Brazil or its constituent entities resident in Brazil will not file such affidavit, when the consolidated income of the previous fiscal year is less than R $2,260,000,000.00 or 750,000,000.00 €.

This will be filed through the EFC or Tax Accounting system, by the Public Digital Accounting System (Speed), so its filing deadline will be the one established for the EFC.

On the other hand, the rule requires the documentation being filed annually along the corporate tax affidavit.


Sanctions for Transfer Pricing Non-Compliance

Transfer Pricing legislation in Brazil does not establish specific Transfer Pricing penalties for non-compliance. Nonetheless, general infractions and penalties may be applied.

In case of the Affidavit late filing, the required taxpayers will be subject to a fine of R $1,500.00 for each month or fraction thereof of delay.

Likewise, in case of inaccurate affidavits, these will be subject to a sanction of 3% of the value of the omitted transactions.

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