Transfer pricing - what are the news?

Transfer pricing - what are the news?

Provisional Measure published on Dec 29, 2022 by the Administration (effective on Jan 1st, 2024 but the option regarding the new parameters has to take place in 2023) brought Brazilian transfer pricing rules into alignment with OECD guidelines.

In short, the arm’s length principle remains reinforced, however its application has been enlarged, for the purpose of finding out the tax calculation base (Enterprise Income Tax and Social Contribution on Net Profit) payable by local legal entities domiciled that carry out commercial or financial operations, covering also contracts or arrangements, with directly or indirectly related foreign parties, seating inside or outside a country or territory with favored taxation (enterprise income tax with a maximum rate minor than 17%) or under a privileged tax regime.

Which means that Brazilian IRS is stepping off from the fixed margins methodology and now adopting the economic analysis of the operation analysis (controlled transaction delineation) favoring the choice by the taxpayer of the most appropriate method (including the possibility of a mixed alternative) for setting the respective price, all with the aim avoid any adjustment (spontaneous or compensatory) by the end of the fiscal year.

Selection of the most appropriate method within:

PIC – Comparable Independent Price (shall be regarded as the most appropriate when there is reliable information on the price or value of the consideration);
PRL – Resale Price less Profit; MCL – Costs plus Profit;
MLT (new)– Transaction Net Margin; MDL (new) – Profit Split; or
EVALUATION CASE BY CASE – providing for a mixed method or other, provided that it produces a result consistent with the one which would be achieved in a comparable operation

Operations that are ruled by the new regulation and shall be taken into consideration by companies and/or organizations (even those unincorporated) holding, directly or indirectly, foreign direct investment in Brazil:

a) Commodities;
b) Intangibles (royalties). Has been revoked the 5% deduction of EIT and payments to tax heavens are not deductible at Amount of royalties is limitless;
c) Intragroup services;
d) Cost sharing arrangements;
e) Business restructuring;
f) Financial transactions (payment of interest);
g) Grant of guarantee;
h) Debt or capital stock operation;
i) Treasury centralized management;
j) Insurance operation;

If you would like to know more about that matter please contact Fischer Law Firm and we will be honored to perform joint efforts pursuing to render the customized support you are looking for.