International Tax Newsletter - December 2023

Brazil adheres to OECD Transfer Pricing rules 

Through Provisional Measure No. 1,152 (of December 28, 2022), published last Thursday (29), amendments were made to the Corporate Income Tax (IRPJ and CSLL) legislation with regard to the rules of Transfer Pricing (TP) in Brazil.

Since Brazil is not yet included in the roll of OECD members, Transfer Pricing (TP) rules in Brazil were previously established in accordance with its internal order, through Normative Instruction RFB 1.312/12, due to that, Brazilian TP rules were considerably different from conventional market practices, especially regarding Brazil's trade relations with other OECD members.

The new Measure is considered to be an approximation of Brazil to the OECD, being part of the changes foreseen for the country's entry into the Organization. The new rules consolidated by MP 1,152 are in line with international standards, some of the new provisions are:

1. The Arm's Length Principle (PAL) as the foundation of future transactions
2. Implementation of five methods: “Cost plus Profit” (MCL), “Net Transaction Margin (MLT)” and “Profit Sharing (MDL)”, in addition to the already known “Compared Independent Prices” (PIC) and “Price Resale Less Profit” (PRL), now without a fixed margin, fearing that alternative methods become possible as long as the Arm's Length principle is observed.
3. Adoption of the "comparability analysis" that must be carried out with the objective of comparing the terms and conditions of the operations analyzed.
4. Intangibles, royalties and cost sharing become objects of transfer pricing control, subject to assessment under Arm's Length conditions.
5. Intragroup services will be assessed based on their potential economic or commercial value for the other party to the transaction.
6. New adjustment methods to the calculation bases, of which there are four types: “Spontaneous Adjustment”, “Compensatory Adjustment”, “Primary Adjustment” and “Secondary Adjustment”.

At the moment, the bill is in the process of being discussion and might be approved by the National Congress within 120 days in order to become law. Additionally, it is important to mention that, article 46 of the MP provides that the taxpayer may opt for the adoption of the new transfer pricing rules for calendar year 2023, however, if adopted, the adherence will be irreversible.

As of January 1, 2024, application of the rules will be mandatory.

For more information, contact your Grant Thornton Brasil consultant.

Brazilian Superior Court of Justice Gives new Provisions for Interest on Net Equity 

The Superior Court of Justice (STJ) has confirmed that taxpayers may retroactively deduct interest on net equity, commonly known as “JCP”. The STJ recognized on the cases REsp 1,955,120 and REsp 1,946,363 that article 9 of Law 9249/1995 does not forbid the retroactive deduction of interest on net equity.

The Court also decided that there is no violation to the accrual accounting method because the payment of the interest on net equity depends on the resolution of the corporate body, and it is only at this moment that the obligation arises for the company, and consequently, the accrual method is respected.

Shipments to warehouses in the Manaus Free Trade Zone are exempt from ICMS 

The Finance Department of the State of SP published a new query solution clarifying that the shipment of goods to a general warehouse located in the ZFM can be carried out with exemption from ICMS.

The benefit should only be applied in cases where the goods sent to the general warehouse will later be destined for consumption or industrialization within the Manaus Free Trade Zone.

In this sense, SEFAZ/SP clarified that “if the goods in question are resold to other cities located outside the Manaus Free Trade Zone before the 5-year period of their shipment to the ZFM has elapsed, under the terms of article 84 of Annex I of the RICMS/2000, its reintroduction in the country's internal market will remain characterized. If this occurs, there will be an obligation to collect the tax related to the originally exempt departure, by means of a special collection guide, within 15 days, as provided for in § 12 of article 84 of Annex I of RICMS/2000”.

Brazil Increases Minimum Wage for 2023

The Brazilian government published the Provisional Measure 1143/2022 through which is has been established a new monthly minimum wage, which, as of 1 January 2023 will be set at BRL 1,302 (BRL 1,212 for 2022). Thus, the daily minimum wage will be BRL 43.40 and the hourly minimum wage will be BRL 5.92.

Copom maintains the economy's basic interest rate at 13.75% in the last meeting of the year 

The Monetary Policy Committee (Copom), of the Central Bank of Brazil (BCB), held its last meeting of 2022 and decided to maintain the Selic rate at 13.75% per year.

This was the last meeting held during the government of Jair Bolsonaro, as the next meeting will take place on January 31, when President Lula will have taken office.

The Selic rate was at 6.5% at the beginning of the current president's term and, in early 2020, it reduced the rate to the lowest level in history and reached 2% per year.

Fixed income treasury bonds allow purchase of public securities with payment via Pix

The federal government announced that investors who are interested in buying fixed income treasury bonds will be able to use Pix for payment.

The Ministry of Economy reported that through the “Cad&Pag” program, which is a new tool available that merges a simplified registration with payment via Pix, investors can acquire public securities without the need to go to a financial institution. or brokerage, being able to make the purchase directly on the official website of the National Treasury.

Federal Revenue Service Clarifies Rules for Settlement of Tax Debts 

Through Ordinance 247/2022, the Federal Revenue Service has clarified certain aspects of the negotiation of tax debts in order to providing more legal certainty and give other provisions.

Between other provisions, the Ordinance explains the definition of the disputes giving rise to tax administrative litigation and those matters that may be subject to appeal, they also clarify that it is also possible to negotiate debts related to non-declared compensation, the cancellation or non-recognition of rectifying declaration letters, and debts related to instalments that are in litigation, as provided by the Supreme Court (Theme 668).