On the 29, September 2023, the Regulatory Instruction RFB No. 2,161/2023 was published, governing the application of new transfer pricing methods in Brazil as stipulated by Law No. 14,596/2023.
This regulatory instruction provides a general framework for the subject. Certain aspects outlined in the law, such as commodities transactions, dealings with intangibles, cost-sharing contracts, business restructuring, and financial operations, in addition to the specific consultation procedure on the matter (Advanced Pricing Agreements or APAs), will be subject to more detailed regulations to be issued subsequently.
For ease of comparison, the major changes in Brazil’s transfer pricing legislation are summarized in the table below:
| Current Rules | New Rules | |
| Arm’s Length Principle | The principle is a source of inspiration without being formally adopted. | The principle is formally adopted, aiming to ensure operations are comparable to those among unrelated parties. |
| Calculation Approach | Fixed margins are used, with a focus on a mathematical calculation methodology. | Adopts benchmark-based methods, prioritizing market transaction comparisons. |
| Method Adoption Criteria | Taxpayers have flexibility in choosing methods, with specific mandatory methods for commodities. | Adopts the most appropriate method, prioritizing the Comparable Independent Price (PIC), including for commodity transactions. |
| Calculation Methods | Includes methods for import and export, and specific methods for commodities. | Maintains only the Comparable Independent Price (PIC) method, introducing others like Resale Price minus Profit (PRL) without fixed margins, Cost plus Profit (MCL), Net Transaction Margin (MLT), and Profit Sharing (MDL). |
In addition to the aspects highlighted previously, the new legislation also details the regulation of service and financial transactions between related parties.
As to the other points addressed, we point out:
- Cost-sharing Agreements: the legal regulation for this topic, which was previously guided only by Responses to Advance Tax Ruling Requests and other pronouncements from the Federal Revenue, now also encompasses service provision agreements with added profit. These will be subject to transfer pricing rules.
- Transactions with Intangibles: these are now governed by transfer pricing rules. The allocation of results is based on the contributions provided by the involved parties, particularly focusing on the relevant functions performed in relation to the intangible and the economically significant risks associated with these functions.
- Financial Operations: these are now subject to oversight under transfer pricing rules, specifically focusing on the control of transaction amounts.
- Implementation and Utilization of Advanced Pricing Agreements (APAs): these agreements are introduced to prevent double taxation scenarios.
- Opportunity for Prior Consultation: taxpayers now have the option to consult with the Federal Revenue beforehand regarding the choice of the transfer pricing method.
- Acknowledgment of OECD Guidelines: there’s now a provision for subsidiary use of the OECD Guidelines in interpreting standards, provided they do not conflict with the stipulations of Law No. 14,596/2023.
- Comparable Operations Criteria: outlines operations deemed comparable, allows specific adjustments, and permits using foreign data, subject to adjustments for market conditions and relevant economic factors.
- Documentation Delivery Requirements: This includes necessary criteria for submitting the local file, global file, and country-by-country report, with a deadline of up to three months following the transmission of the ECF. For the years 2024 and 2025, the submission deadline is extended to the last day of the respective year.
- Applicable Penalties: The legislation specifies the following penalties:
- a) Local File Non-Presentation: incurs a penalty of 0.2% of the taxpayer’s gross revenue, applied for each month or partial month, for the assessed period al File Non-Presentation: Incurs a penalty of 0.2% of the taxpayer’s gross revenue, charged monthly or for any part thereof, for the assessed period.
- b) Inadequate Presentation of Local File: a penalty of 3% (three percent) of the taxpayer’s gross revenue for the period analyzed is applied for submissions that do not meet the specified requirements.
- c) Failure to present the Global File: a penalty of 0.2% (two-tenths of a percent) is applied on the value of the consolidated revenue of the multinational group for the year preceding the one to which the information refers. This applies in cases of submission with inaccurate, incomplete, or omitted information.
- d) Delay or Obstruction in Providing Information: a fine equivalent to 5% (five percent) of the value of the transaction, as assessed by the tax authority, is imposed for failing to timely present information or documentation requested during a tax procedure or other prior inspection measure. This also applies to any conduct that impedes the inspection process.
The deadline for early adoption of the new rules has been extended. Taxpayers may opt for early adoption up until December 31, 2023.
