Originating from Law No. 14,596/2023, this regulation aligns Brazil with the guidelines of the Organization for Economic Cooperation and Development (OECD). The main focus is price control in controlled international transactions that affect the IRPJ and CSLL calculation basis of Brazilian companies. The regulations encompass entities described in Law No. 9,430/1996 and taxpayers of IN RFB No. 1,700/2017, including subsidiaries and branches.
The OECD guidelines, as presented in the report “OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration 2022”, are adopted as a reference, except when they are in disagreement with Law No. 14,596/2023. Furthermore, the “arm’s length” principle is highlighted, ensuring parity in controlled transactions with those made between independent entities, and any deviations will result in adjustments.
Let's see below the main IN topics that from now on will significantly impact the commercial relationship between Brazilian companies and their related parties abroad:
RFB Normative Instruction No. 2,161/2023 expressly defined what constitutes a “controlled transaction”, “series of transactions” and arrangement”.
The following transactions are subject to the new Transfer Pricing rules:
The Normative Instruction defines when two parties are considered related. They are considered as such when one of them can be influenced by another in order to establish terms different from those that would be agreed between unrelated parties. There are several situations where parties are considered related, including situations where:
The "entity" can be any person or arrangement, even without legal personality. And the tax authority may determine other situations where parties are considered related.
The text also clarifies what constitutes a control relationship. One entity controls another when:
Furthermore, it addresses the definition of related entities, which is when one entity has significant influence over another, even without controlling it. Significant influence is considered when one entity has a 20% or more stake in another.
Procedures:
I - Outline of the controlled transaction.
II - Comparability analysis of the controlled transaction, as outlined
Based on the analysis of facts, circumstances, and evidence of effective conduct to identify commercial and financial relationships between related parties.
Need:
Considers options available to both parties in controlled transactions, evaluating whether more advantageous options would be adopted between unrelated parties.
Factors include contractual terms, functions performed, characteristics of goods/rights/services, economic circumstances, business strategies, and other relevant characteristics.
Evidence of effective conduct is important for outlining the transaction.
Reference to the attribution of rights and obligations between the parties, which may be derived from documents, facts, and evidence of effective conduct.
Elements of the contractual terms listed (deadlines, quantities, guarantees, etc.).
Identification of functions through functional analysis, considering activities, group structure, and rights/obligations.
Examples of roles include research, production, sales, marketing, among others.
Considers characteristics that influence value, such as physical characteristics and quality of tangible assets and types of intangibles.
Circumstances may include geographic location, market size, competitiveness, availability of substitutes, among others.
Strategies may include innovation, diversification, adaptation to changes, contract duration, among others.
Other characteristics, including group synergies, should be outlined.
Transaction may be disregarded or replaced if unrelated parties would not have carried out the same under similar conditions.
Commercial rationality is essential and cannot be justified solely by tax advantages.
The comparability analysis, as established in the legislation, aims to ensure that the terms and conditions of a controlled transaction are in accordance with those established between unrelated parties in similar transactions. This analysis considers relevant economic characteristics, transaction dates, availability of information, selection of the appropriate method, uncertainties in pricing, synergy effects and other elements.
The analysis follows typical steps: determination of the analysis period, verification of internal and external comparables, selection of the most appropriate method, identification of potential comparables, comparability adjustments and interpretation of the collected data.
Comparables, whether internal (transactions where one of the parties is also part of the controlled transaction) or external (transactions between independent parties unrelated to the controlled transaction), are used according to their relevance and reliability.
The legislation also highlights that certain transactions are not considered comparable, such as those that are not carried out in the ordinary course of business or that are intended to establish a comparable transaction. There is an emphasis on evaluating combined transactions, non-transactional data, intentional offsets, and timing issues.
The effects of synergies, whether deliberate or incidental, must be accounted for and, if appropriate, compensated between the parties involved. The legislation also provides guidance on comparability adjustments, highlighting the importance of ensuring that the transactions analyzed are truly comparable. Specific adjustments, such as accounting standards and product characteristics, are mentioned as examples.
This normative instruction addresses the selection and application of methods for determining transfer prices in controlled transactions. Six methods are outlined: Comparable Independent Price (PIC), Resale Price minus Profit (PRL), Cost Plus Profit (MCL), Net Transaction Margin (MLT), Profit Sharing (MDL) and other alternative methods.
The choice of the most appropriate method is based on its ability to provide the most reliable determination of the terms that would be established between unrelated parties in a comparable transaction. Each method has its specificities and application scenarios.
The methods are as follows:
Allow different approaches, as long as they result in prices consistent with unrelated transactions.
Choosing the most appropriate method considers:
The Comparability criteria are:
Other important considerations about methods:
Application of the methods requires careful consideration of accounting differences and apportionment criteria.
As for alternative methods, they can be selected in the following circumstances:
Characteristics of these alternative methods:
a) Assessment Techniques or Models:
b) Taxpayer Obligations:
Taxpayers who opt for alternative methods must:
Essentially, when traditional transfer pricing methods are not applicable or reliable, taxpayers have the option to use alternative methods, but they must justify this choice and use reliable assumptions and criteria in the assessment.
The tested party is selected based on the most appropriate applicability of the method and the availability of reliable data from comparable transactions between unrelated parties.
In controlled transactions, certain adjustments can be made to ensure that the tax calculation basis is aligned with what would be established between unrelated parties.
When the terms and conditions of controlled transactions do not follow those of transactions between unrelated parties, adjustments are made to reflect the appropriate terms. The tax authority may make the primary adjustment in case of non-compliance. Certain adjustments to reduce the tax base or increase the tax loss are prohibited unless they fall into specific exceptions.
The compensatory adjustment has specific guidelines, such as the need to reflect the adjustment in accounting records and the issuance of debit or credit notes. Carrying out this adjustment does not require prior authorization but can be verified later.
Finally, the adjustments made do not automatically imply changes in the calculation basis of other taxes.
The RFB may establish rules to simplify and guide the application of the principles of controlled transactions. In certain cases, a simplified approach may be permitted, especially in transactions involving low value-added services.
RFB Specific Rules:
The remuneration for these services will have a gross profit margin of 5% on direct and indirect costs. These services are:
Examples of SBVA are: human resources management, accounting, auditing, legal and IT services.
Not included as SBVA: R&D, manufacturing services, raw material purchasing activities, sales, marketing, financial transactions, among others.
Payments are only deductible if the activity offers reasonable economic value to the taxpayer.
The text of the Normative Instruction details the documentary obligations and necessary requirements that taxpayers must follow in relation to their transactions subject to transfer pricing control. In summary, taxpayers must present documentation and information demonstrating compliance with the IRPJ and CSLL calculation bases relating to such transactions.
There are three main types of documents:
It must be designed to provide information regarding the structure and activities of the multinational group to which the taxpayer belongs and the other entities that make up that group.
It will be waived if the total value of the taxpayer's controlled transactions, before transfer pricing adjustments, in the previous calendar year is less than R$15,000,000.00.
It must contain specific information such as:
If written in a foreign language, it must be accompanied by a simple translation into Portuguese, with exceptions for documents in English or Spanish.
It must be prepared whether the total value of the taxpayer's controlled transactions, before transfer pricing adjustments, in the previous calendar year:
It will be waived if the total value of the taxpayer's controlled transactions, before transfer pricing adjustments, in the previous calendar year is less than R$15,000,000.00.
You should consider specific controlled transactions, such as:
It must be presented digitally through the RFB's e-CAC within 3 months after the deadline set for transmission of the ECF for the corresponding calendar year. The same procedure must be applied to the Global Archive.
If the taxpayer does not provide adequate information about controlled transactions, the tax authority can allocate functions, risks and assets to the Brazilian entity and also use estimates to outline the transaction. If the taxpayer does not comply with certain requirements related to Global and Local Files, he is subject to the following fines:
The maximum fine may be applied in the following cases:
Taxpayers can choose to apply articles 1 to 44 of Law No. 14,596/2023 in advance to 2023.
The new Transfer Pricing legislation must be implemented:
There is emphasis on non-deductibility in certain circumstances of payments, such as royalties and technical assistance to related parties.
The text of the Normative Instruction provides a list of annexes related to specific topics in financial and tax transactions. These annexes cover topics such as indirect transactions, comparability adjustments considering country-specific risks, use of data from multiple years, netback adjustment, the use of median and interquartile range, and an option term.
Several operations related to Transfer Pricing, as established in Law No. 14,596/2023, are still pending regulation. These include:
The adoption of recent transfer pricing rules in the tax landscape represents a significant transformation, the impacts of which can be profound for taxpayers. In this context, it is imperative that companies anticipate, proactively evaluating how these changes may affect their business models. Therefore, carrying out a transfer pricing diagnosis not only demonstrates a proactive stance, but also helps to identify potential vulnerabilities and opportunities in the new regulatory environment.
With this analysis in hand, taxpayers will be better prepared to structure their pricing policies in line with the new principles, optimizing tax compliance and avoiding possible contingencies. This is a crucial step to ensure a smooth transition while exploring potential benefits under the new regime.
Grant Thronton, recognizing the complexity and importance of this change, is committed to serving as a compass in this evolving landscape. Our team of experts is constantly monitoring the nuances associated with this matter, ensuring that our clients and the market at large are
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