The New Transfer Pricing in Brazil.

Brazil has published new transfer pricing (TP) regulations adopting the arm’s-length principle (Medida Provisória (MP) No 1.152).

The law changes the TP rules in Brazil to align with the OECD’s arm’s-length principle, which focuses on an analysis of the functions performed and risks assumed by each related party in the transaction, and as independent parties’ comparable methods.

The anticipated positive impact of these changes on income tax revenue comes from internal studies conducted by Receita Federal. The transfer pricing regime revisions can potentially bolster the government’s tax collection efforts.

The new Brazilian TP will help companies to simplify their compliances worldwide and also be easier for tax authorities to enforce.

The Brazilian IRS (Receita Federal do Brazil) published Instrução Normativa No. 2,132, requiring that companies subject to TP regime may have to apply – in advance – for their TP’s methodology and royalty deductions as determined in MP No. 1,152/2022. That option shall be made during 2023.

Some key points to consider:

·      Taxpayer’s option is irrevocable;

·      Filing window is September 1 – 30, 2023;

·      The Receita Federal IN reinforces the MP rule regarding the non-deductibility of amounts paid for royalties, technical, scientific, administrative, or similar assistance to entities resident or domiciled in countries or dependencies with favorable taxation or that are beneficiaries of a privileged fiscal regime, or to related parties when the deduction of the amounts results in double nontaxation.