Brazil: Changes in the country’s transfer pricing landscape

In recent years, Brazil has emerged as a crucial partner in the efforts of the Organisation for Economic Co-operation and Development (OECD). Despite not being a member of the organization, Brazil has actively engaged with it, providing valuable policy insights. The journey towards accession began in 2022, prompting significant changes in the country’s transfer pricing landscape. Read about these developments and their implications to gain a deeper understanding of Brazil’s evolving role on the international stage.

In 2023, Brazil marked a significant milestone by enacting Law No. 14,596 (the Law), which incorporated the OECD transfer pricing standards into its legal framework for the first time. This development underscores Brazil’s commitment to align its practices with international standards.

We wrote about the law when it was proposed in the spring of 2023. For an overview, please follow the link: New Transfer Pricing Rules in Brazil: One Step Closer to OECD

Detailed guidance

On September 29, 2023, the Brazilian tax authority, RFB, published Normative Instruction No. 2,161 (the Regulations), offering detailed guidance on the application of the new transfer pricing rules in transactions between Brazilian companies and foreign-related parties. Like the Law, these regulations closely adhere to OECD guidelines and principles. Notably:

• The 2022 OECD Transfer Pricing Guidelines are recognized as a subsidiary source for interpretation, except when they conflict with the Law, the Normative Instruction in question or other RFB normative acts.
• Disposal or transfer of assets, including shares and other interest, even if they occur as a return of capital or capital contributions, are categorized as controlled transactions. 
• The option to combine methods is available when a single method does not yield appropriate results.
• Penalties for non-compliance with transfer pricing documentation or information provision range from a minimum of R$20 thousand (approximately USD 4 000) and a maximum of R$5 million (around USD 970 000)

The regime takes effect in 2024

While this new regime formally takes effect in 2024, it remains optional for 2023. For commodities, the obligation commenced on January 1, 2024, and for the new TP return the deadline is set for July 31 (or the last business day of July) of the following year. 

Taxpayers opting for early adoption must promptly initiate the preparation of the required documentation, taking into account the Declaratory Acts implementing ancillary transfer pricing obligations published by the Brazilian tax authorities in January 2024. For taxpayers that did not opt for early adoption, understanding the intricacies of the new TP is crucial. This comprehension is essential for establishing internal controls to enable compliance in the coming year. 

These regulations impact the calculation of Corporate Income Tax and Social Contribution on Net Profits for Brazilian companies engaged in controlled transactions with foreign related parties. Given the recent publication of these regulations, their precise interpretation and application remain fluid. Nevertheless, businesses dealing with Brazilian entities should proactively assess their transactions falling under the controlled transactions category and strategize accordingly. This may involve early adoption of the new regulations or preparing for compliance with transfer pricing documentation and information requirements mandated by the Brazilian Tax Authorities. We recommend staying informed as the landscape evolves. 

For further reading: Organisation for Economic Co-operation and Development