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New Transfer Pricing rules in Brazil: One step closer to OECD

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In early 2022, the Organization for Economic Cooperation and Development (“OECD”) Council provided a Roadmap that set out the terms, conditions and processes for the accession of Brazil to the OECD. The Provisional Measure Nº 1,152/2022 is the most recent step made by the Brazilian government to align local transfer pricing rules with OECD standards as part of this Roadmap. Subject to the approval of the National Congress (Chamber of Deputies and Senate), the Provisional Measure will come into force on January 1st, 2024.

Provisional measures are instruments issued by the Brazilian Government, with the purpose to implement norms and principles with immediate effect. Provisional measures are accordingly an instrument used to regulate matters of particular urgency. 

The Provisional Measure Nº 1,152/2022 is aimed at achieving further alignment between local and international transfer pricing rules, and which will come into force as of January 1st, 2024. However, the Provisional Measure also needed to be ratified by the National Congress within 60 days from the date of publication i.e. by June 1st, 2023, to be converted into ordinary law and remain effective. On March 30th, 2023, the Chamber of Deputies approved the Provisional Measure but introduced some amendments to its original text. The Provisional Measure (with new text) is currently on the Senate’s agenda. However, it is important to emphasize that the Senate may or may not vote on the Provisional Measure, and if approved, the legislation may undergo further changes.

The new transfer pricing rules provide taxpayers with the option of adopting the Provisional Measure already in 2023, which needs to be formalized between September 1st and 30th. 

Brief overview of the new rules

The most noteworthy change that the Provisional Measure may bring about is the harmonization with the OECD Transfer Pricing Guidelines (“OECD TPG”). More specifically, the Provisional Measure brings the Brazilian domestic transfer pricing rules significantly closer to the arm’s length concept in the OECD TPG, including full alignment with the OECD TPG prescribed transfer pricing methods. 

More specifically, the Provisional Measure is organized into five chapters, which broadly follow the OECD TPG’s principles. The first chapter comprises the application scope of the new rules. The second chapter covers  the arm’s length principle, related parties, controlled transactions, comparable transactions, transfer pricing methods, commodities and transfer pricing adjustments. The third one includes rules regarding transactions related to intangibles, hard-to-value intangibles, intra-group services, cost contribution arrangements, business restructurings, financial operations and insurance contracts. Aspects regarding documentation and penalties are delineated by chapter four. Lastly, the fifth chapter provides rules on administrative approaches to avoid and resolving transfer pricing disputes, such as advance pricing agreements.  

On the other hand, some aspects of the Provisional Measure are not fully aligned with the OECD TPG. For instance, the Provisional Measure provides for a broader definition of related parties and controlled transactions, in addition to advocating the use of the full range of comparables when the data collected can be deemed reliable. In addition, another difference is that transactions carried out towards entities located in low-tax jurisdictions are according to the new Brazilian regulations subject to a 17 percent tax rate, whilst the global minimum tax rate stipulated by the Pillar II framework amounts to 15 percent. In general, it will also not be allowed to make TP adjustments that reduce the income tax or increase losses. These differences may continue to give rise to significant controversy and uncertainties for local taxpayers.

With a view towards the future

Further, the Brazilian Government delegates power to the Federal Revenue of Brazil to draft and implement subordinate legislation. Accordingly, the Federal Revenue of Brazil will issue more detailed regulations. More specifically, this means that inconsistencies may also follow from the continued implementation of the new rules if these more detailed regulations are not fully harmonized with the OECD TPG. 

Whilst it is not clear as of yet how closely aligned the Brazilian rules may be with the OECD TPG and international tax practices, it is clear that Brazilian taxpayers need to start analyzing and preparing for the changes to come. Careful consideration to the content of the Provisional Measure and future anticipated legislative measures is required, as well as an analysis of the facts and circumstances of the local business activities performed, in order to determine whether a move should be made towards the adoption of the Provisional Measure. 

Contact us

Behrang Nikou

Behrang Nikou

Behrang Nikou works at the tax department at PwC’s office in Malmö with transfer pricing.
Contact: +46 10-213 27 06, behrang.nikou@pwc.com

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