International Tax Newsletter - December 22 - Extraordinary publication

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.