Cecilia Goldemberg, Managing Partner and Transfer Pricing specialist at Andersen, shares her analysis of the new regulation and its impact on companies.
On May 10, 2023, the Brazilian Congress approved the law with the new transfer pricing regime that the government had outlined in December 2022 (through Provisional Measure 1152/2022), which has important economic and financial implications for multinational companies operating in that country, given the profound change in the mechanisms for determining prices in transactions between related parties.
In essence, the new provisions are fully aligned with the Organization for Economic Co-operation and Development (OECD) Guidelines and are thus in harmony with the generally prevailing regimes in all nations.
The Brazilian transfer pricing regime, now replaced, is an exception to the international valuation consensus for corporate income taxation purposes, by adopting a methodology based on pre-established income percentages according to the type of transaction and industry or activity, which requires a transaction-by-transaction test, without consideration of the particular circumstances of each case, totally disregarding the “arm’s length” principle. This lack of international harmony led, in many cases, to undesirable double taxation.
The new transfer pricing regime will be mandatory for all affected taxpayers as from January 1, 2024, but may be adopted, on an optional basis, in the tax year 2023, which must be reported to the tax authorities (RFB) between September 1 and September 30, 2023, in the absence of an express extension.
Some of the highlights of the new regulation include:
- Only transactions with related companies abroad will be tested under this regime.
- The extension of operations subject to transfer pricing scrutiny to intra-group services, transactions with intangibles and financial operations.
- The adoption of the most appropriate method to evaluate the transactions subject to test, contemplating all the methods foreseen in the OECD guidelines, be they The following methods are used: the transaction methods (comparable prices, resale price and cost plus profit) such as the net transaction margin method, the “profit-split” method and special methods in the cases expressly allowed.
- The establishment of an analysis of functions, assets and risks for the selection of the method applicable to the case.
- The introduction of the comparable range for the economic analysis, which can be interquartile or complete, according to the greater or lesser comparability of the observations.
- The adoption of a Preliminary Price Agreement and Mutual Agreement mechanism to avoid or reduce conflicts.
- Restrictions on the deduction of royalty and technical assistance payments to foreign counterparties would end.
Multinational companies that had to apply minimum margins could benefit from the new regulations, as they harmonize with those in force in the countries where the counterparty of the transactions is located, as well as the possibility of deducting royalties contracted with counterparties located in countries with lower taxation.
It is advisable to carry out a diagnosis on the impact of the new rules, in relation to their potential incidence on transfer pricing policies, which may very likely have an impact on bilateral trade between Argentina and Brazil.
The challenge for multinational companies with respect to regulatory changes in transfer pricing requires a permanent evaluation in order to better position themselves to meet the new requirements. Andersen is at your disposal to help you make the inevitable transition to the new regime in Brazil as efficiently as possible and to assist you globally.
For any questions, please contact us:
Transfer Pricing Director