Transfer Pricing 2021

Last Updated April 09, 2021

Brazil

Law and Practice

Authors



Trench Rossi Watanabe is one of the largest law firms in Brazil, with expertise in all areas of law and offices located in São Paulo, Rio de Janeiro, Brasília and Porto Alegre. The tax team is specialised in all areas of tax (litigation and non-litigation), comprising 16 partners and 38 associates, including some of Brazil’s most highly regarded consulting and trial attorneys, and with a diverse group (eight women tax partners). Trench Rossi Watanabe has a consolidated position on local and global transfer pricing matters. At the consulting level, the firm has been working on complex cross-border transfer pricing projects involving multiple jurisdictions. At the litigation level, it has been obtaining relevant and unique decisions on transfer pricing matters in both administrative and judicial matters. The financial and accounting backgrounds of the tax team offer a unique expertise that effectively helps clients in the solution of problems from a business standpoint and in providing high-quality transfer pricing work.

The Brazilian transfer pricing rules were introduced in Brazil through Law 9,430/96 in order to prevent artificial allocation of income in certain cross-border transactions, mainly with related parties. The rules aim at ascertaining a deemed price that would have been agreed if it were a cross-border transaction between unrelated entities.

Despite the Brazilian transfer pricing legislation being inspired by the OECD Model Convention, it is important to note that Brazil does not follow the OECD Transfer Pricing Guidelines and the "arm’s-length principle" based on functions performed, assets used and risks taken by the parties performing the transaction subject to control.

In summary, imports, exports and financing transactions are subject to Brazilian transfer pricing control in Brazil whenever they are carried out between a Brazilian taxpayer and a foreign related party or a foreign party domiciled in a low-tax jurisdiction or subject to a privileged tax regime. There are a few other cases described in the rules that may be subject to transfer pricing scrutiny.

With regard to imports, the Brazilian transfer pricing rules provide for methods to determine the maximum amounts of deductible expenses for corporate income taxes (CIT, or IRPJ and CSLL) purposes. For exports, the Brazilian transfer pricing rules provide for methods to determine the minimum taxable revenue for CIT purposes.

If a transaction subject to transfer pricing control is within the limits set forth by the Brazilian transfer pricing regulations, no tax adjustment is necessary even if the deemed "arm’s-length price" (the so-called parameter price) is different from the effective price applied in the given transaction. The parameter price is equivalent to the minimum taxable revenue (in the case of exports) or to the maximum deductible expense (in the case of imports) that a taxpayer should consider for CIT purposes.

Also, it is important to note that compliance with the transfer pricing rules must be evidenced by product and/or transaction (ie, there is no basket approach), with few exceptions. In this sense, it is possible to apply different methods for each product and transaction, as long as the method is consistently applied during the entire calendar year. Compliance is generally tested on an annual basis.

The current transfer pricing regime was introduced in Brazil through Law 9,430/96, which specifies the general applicable transfer pricing rules in order to prevent artificial allocation of income between countries in certain cross-border transactions.

The main changes performed in the legislation since Law 9,430/96 came through Law 12,715/12, which, among other changes, modified the profit margins applicable under the resale price less profit (PRL) method – in the case of import transactions. It established a minimum profit margin of 40%, 30% or 20% depending on the economic sector of the company subject to transfer pricing control.

Law 12,715/12 also created two new transfer pricing methods for exclusive use in commodity transactions (best method rules). These methods are the price under import quotation (PCI) and the price under export quotation (PECEX), applicable to import and export transactions, respectively.

In line with the changes under Law 12,715/12, the Brazilian Internal Revenue Service (RFB) issued Normative Ruling 1,312/12 to govern/regulate the transfer pricing issues in Brazil. This normative ruling revoked Normative Ruling 243/02, which was the former transfer pricing regulation in place.

More recently, Normative Ruling 1,870/19 was issued, providing additional amendments to Normative Ruling 1,312/12 to clarify the interpretation of specific transfer pricing matters.

Apart from the above, in June 2010, the RFB issued Normative Ruling 1,037/10 listing the countries and jurisdictions deemed to be low-tax jurisdictions or privileged tax regimes for different reasons, including for transfer pricing purposes (this list has been amended several times over the past few years).

In addition to the regulations above, the following rules are also in effect:

  • Normative Rulings 602/05, 1,124/11, 1,547/15 and 1,623/16;
  • Declaratory Act 37/02; and
  • Ordinances 222/08, 436/05, 425/06, 329/07, 310/08, 04/11 and 563/11.

These normative acts may not exceed the limits specified in Law 9,430/96, but merely regulate and interpret matters that are already dealt with in a general way by this law.

Potential Changes for the Near Future

On 30 May 2017, the Brazilian Ministry of Finance and the Brazilian Ministry of Foreign Affairs sent a letter to the secretary-general of the OECD requesting initiation of the process for Brazil to become accepted as an OECD member country.

Considering the potential accession of Brazil to the OECD, transfer pricing is one of the key areas where alignment with the OECD standard should be assessed. In this respect, the OECD and the RFB launched a joint project in 2018 in order to examine the similarities and divergences between the Brazilian and OECD transfer pricing rules.

In December 2019, the OECD and the RFB issued a joint report on convergence of the Brazilian transfer pricing rules with the OECD standard. In summary, the RFB and the OECD identified the gaps and divergences between the Brazilian and the OECD transfer pricing rules, and thereupon agreed on two potential options for alignment as described in the joint report:

  • full and immediate alignment – immediately align the Brazilian transfer pricing rules with the OECD standard, including the arm’s-length principle and the guidance for its application contained in the OECD Transfer Pricing Guidelines; and
  • full and gradual alignment – involves the same full alignment, but structures the process in stages for gradual implementation, allowing the RFB to prioritise its needs and receive training and assistance from the OECD.

In July 2020, the OECD and the RFB also launched a survey seeking for public collaboration in the development of safe harbours and other simplification measures on transfer pricing matters. The main objective of the survey was to offer the opportunity for taxpayers and interested parties to present their comments related to situations where specific safe harbour regimes may be needed, considerations regarding the use of advance pricing arrangements (APAs) for specific sectors, and other simplification measures.

Although the OECD and the RFB are moving forward in discussions to align the Brazilian transfer pricing rules with the OECD guidelines, no effective change in the Brazilian legislation based on the OECD guidelines has been implemented up to now.

For corporate income tax purposes, legal entities formally incorporated in Brazil, as well as permanent establishments (PEs) and branches of foreign companies, are considered as legal entities subject to CIT and to the Brazilian transfer pricing rules, depending on the transaction under analysis.

Transactions that are subject to transfer pricing control are those related to goods, services and rights performed between related parties (one Brazilian and one foreign party), with few exceptions (eg, payment of royalties abroad). The payment or receipt of interest resulting from cross-border financial transactions may also be subject to transfer pricing control.

Not only companies with a corporate relationship, but also exclusive distributors and transactions carried out with companies domiciled in low-tax jurisdictions or under privileged tax regimes are subject to transfer pricing rules in Brazil. The current regulations in place adopt a broad concept of parties/transactions subject to transfer pricing control.

The Brazilian transfer pricing rules are applicable to transactions performed between the following entities.

Related Entities

According to Article 23 of Law 9,430/96, for transfer pricing purposes, the following are considered to be related to legal entities domiciled in Brazil:

  • a non-resident parent company;
  • a non-resident subsidiary or branch;
  • a non-resident individual or legal entity, the holding of which in the capital of the Brazilian entity renders him/her/it the controlling or associated shareholder thereof, under Article 243(1, 4 and 5) and (2) of the Corporation Law;
  • a non-resident legal entity that is defined as its subsidiary or associated company under Article 243(1, 4 and 5) and (2) of the Corporation Law;
  • a non-resident legal entity that, together with the Brazilian company, is under common corporate or administrative control, or when at least 10% of the share capital of each one belongs to the same individual or legal entity;
  • a non-resident individual or legal entity that, together with the legal entity domiciled in Brazil, has a holding in the capital of a third legal entity, the sum of which makes them controlling or associated shareholders, under Article 243(1, 4 and 5) and (2) of the Corporation Law;
  • a non-resident individual or legal entity that is associated to the Brazilian company in any business through a joint venture or co-ownership, as defined under Brazilian law;
  • a non-resident individual who is a relative or kin down to the third degree, or a spouse or cohabitant of its directors or officers, or of its direct or indirect controlling partner or shareholder;
  • a non-resident individual or legal entity that is the exclusive agent, distributor or dealer of the Brazilian entity for the purchase and sale of goods, services or rights; and
  • a non-resident individual or legal entity for which the Brazilian entity is the exclusive agent, distributor or dealer for the purchase and sale of goods, services or rights.

A Brazilian Entity and an Entity Located in a Low-Tax Jurisdiction (Tax Haven)

According to Article 24 of Law 9,430/96, a tax haven ("country or dependency with favoured taxation") is a country that does not tax income or that taxes it at a maximum rate of less than 20%.

Furthermore, countries with favoured taxation are also considered to be those whose legislation does not allow access to information regarding the corporate composition of legal entities, their ownership or the identification of the beneficiary of income attributed to non-residents.

Normative Ruling 1,037/10 lists the jurisdictions deemed low-tax jurisdictions.

A Brazilian Entity and an Entity Considered to Be under a Privileged Tax Regime

According to Article 24-A of Law 9,430, a privileged tax regime is one in which:

  • income is not taxed, or is taxed at a maximum rate lower than 20%;
  • tax advantages are granted to non-resident individuals or legal entities (i) without requiring any substantial economic activity to be carried out in the country or location, or (ii) contingent on the absence of substantial economic activity in the country or location;
  • the income earned outside its territory is not taxed, or is taxed at a maximum rate lower than 20%; or
  • access to information related to the corporate structure, ownership of goods/rights or the economic transactions performed is not allowed.

Normative Ruling 1,037/10 also lists the countries/jurisdictions deemed under privileged tax regimes.

A Brazilian Entity and an "Interposed Party"

Normative Ruling 1312/12 determines that the transfer pricing rules also apply in the case of transactions carried out by a Brazilian entity, through an interposed party not characterised as a related party, but that carries out a transaction with another party abroad deemed to be a related party of the Brazilian entity.

Under Articles 18 and 18-A of Law 9,430/96, as amended by Laws 9,959/00, 10,451/02, 11,116/05 and 12,715/12, the Brazilian transfer pricing rules provide for the following methods applicable on import transactions.

Comparable Uncontrolled Price Method (PIC)

The parameter price according to the PIC is defined as the weighted arithmetical average of the sales price of goods, services or rights, either identical or similar, prevailing in the Brazilian or foreign markets, in transactions of purchases and sales under similar payment conditions. In other words, the Brazilian taxpayer compares its costs, expenses and charges of goods, services or rights imported from a related party, during a given period, with such arithmetical average.

With respect to the arithmetical average, only transactions carried out between unrelated purchasers and sellers can be taken into consideration for calculating the average. In addition, the legislation does not elect a preferred jurisdiction, whether local, state or foreign, in which “uncontrolled prices” are adopted in transactions between unrelated parties.

As a general rule, the transactions used for calculating the PIC must:

  • represent at least 5% of the value of the imports subject to transfer pricing control carried out by the Brazilian legal entity during the calculation period related to the type of good, right or service imported, in the event that the data used for the calculation is related to its own transactions; and
  • correspond to uncontrolled prices of the same calendar year of the respective import transactions subject to transfer pricing control.

Resale Price Less Profit Method (PRL)

The parameter price determined according to the PRL corresponds to the arithmetical average of the resale prices of goods, services or rights in the local market less:

  • unconditional discounts granted;
  • taxes and contributions imposed on sales;
  • commissions and brokerage fees paid; and
  • a profit margin that may vary according to the economic sector of the company, calculated over the resale price after deducting the last three items previously mentioned and the proportional valued added in the country.

The profit margins mentioned above are as follows:

  • 40% to the sectors of (i) pharmaceutical and pharmaceutical chemical products; (ii) tobacco products; (iii) optical, photographic and cinematographic equipment and instruments; (iv) machinery, apparatus and equipment for dental medical and hospital use; (v) extraction of oil and natural gas; and (vi) products derived from petroleum;
  • 30% to the sectors of (i) chemical products; (ii) glass and glass products; (iii) cellulose, paper and paper products; and (iv) metallurgy; and
  • 20% to other sectors.

The resale price is the price practised by the taxpayer in the wholesale or the retail markets in Brazil with unrelated purchasers, either individuals or legal entities. Differences in payment conditions can be adjusted according to the interest rate adopted by the taxpayer in its regular sales. If no interest rate applies consistently, the adjustments in payment conditions must be made according to interest rates provided for in the regulations.

The legislation determines that the parameter price must be calculated considering the percentage of the imported goods, services or rights in relation to the total cost of the good, service or right resold in Brazil, the so-called proportional calculation. For purposes of the proportional calculation, the taxpayer cannot include in the weighted average cost of the imported good, right or service:

  • the value of the freight and insurance incurred by the importer and paid to unrelated parties (or parties located in the regular jurisdiction);
  • the taxes levied upon importation; and
  • the expenses with customs clearance.

On the other hand, such amounts must be considered for the calculation of the total weighted average cost of the same good, service or right. The legislation further details the calculation to obtain the parameter under the PRL.

Production Cost Plus Profits Method (CPL)

Under the CPL, the parameter price is defined as the arithmetical average production cost of goods, services or rights, either identical or similar, in the country where they were originally produced, including the taxes levied on exports in that country and a mark-up of 20%, calculated over the production cost. Pursuant to Normative Ruling 1,312/12, the following items can be computed in the production cost:

  • acquisition costs of raw materials, intermediary products and packaging material used in the production of the good, service or right;
  • the costs of other goods, services or rights used or consumed in the production of the relevant good, service or right;
  • the cost of the personnel used in the production of the good, service or right, including those associated with direct supervision of the manufacturing process or production, maintenance and security of production facilities and corresponding social charges required or admitted according to the regulations of the country where the goods, services or rights are produced;
  • costs of rents, leases, maintenance and repair, and depreciation and amortisation charges of the goods, services or rights used in the production of the relevant good, service or right; and
  • reasonable losses in the production process admitted by the tax legislation of the foreign country.

When the legislation refers to "production cost", it actually requires that the Brazilian taxpayer has access to accurate and detailed costs of production of the imported goods (service or right), as listed above.

Exchange Import Price Method (PCI)

With effect from 1 January 2013, this method – which applies to commodities – is based on the quotation prices of the goods or rights in the futures and commodities exchanges that are internationally recognised and listed by tax authorities, adjusted upward or downward of the average market premium and other variables provided in the applicable legislation at the transaction date or at the date of registration of the import declaration, if this date is not identified. This method is viewed as a best method rule. Thus, in the case of commodities, the taxpayer is required to apply the PCI in its import transactions.

Regarding export transactions, taxpayers must comply with one of the export methods detailed below whenever the average sales price in such transactions is lower than 90% of the average sales price in the Brazilian market during the same period and according to similar payment conditions.

If the average price with related parties is equal to or higher than 90% of that used with unrelated parties, the export income will not be subject to transfer pricing adjustments. This exception does not apply to commodities.

In a case where the export price does not reach 90% of the average sales price in the Brazilian market, the taxpayer is required to apply the transfer pricing rules and adopt one of the following methods provided in Articles 19 and 19-A of Law 9,430/96.

Acquisition or Production Cost Plus Taxes and 15% Profit Margin (CAP)

The parameter price is calculated based on the arithmetical average of the acquisition or production costs of goods, services or rights exported, including the taxes levied on exports in Brazil, plus a profit margin ("mark-up") of 15% over the sum of costs and taxes.

Average Price of Export Sales (PVEx)

The parameter price is calculated based on the arithmetical average of the export prices adopted by the Brazilian taxpayer or by other domestic exporters to unrelated parties upon exports of goods, services or rights, either identical or similar, during the same period/year and under similar payment conditions. If the taxpayer does not export goods, services or rights to unrelated parties, it is possible to compare the taxpayer’s export prices with those adopted by local third parties that export identical or similar goods, services or rights to unrelated parties.

Wholesale Price in the Destination Country Less 15% Profit Margin (PVA)

The parameter price is calculated based on the arithmetical average sales price of goods, either identical or similar, adopted in the wholesale market in the country of destination, with similar payment conditions, after deducting:

  • the taxes computed in the sales price, charged in the country of destination; and
  • a profit margin of 15% over the wholesale price.

Retail Price in the Destination Country Less 30% Profit Margin (PVV)

The parameter price is calculated based on the arithmetical average sales price of goods, either identical or similar, adopted in the retail market in the country of destination, with similar payment conditions, after deducting:

  • the taxes computed in the sales price, charged in the country of destination; and
  • a profit margin of 30% over the retail price.

Exchange Export Price Method (PECEX)

This method – applicable to commodities – is defined as the daily average values of the quotation of goods or rights subject to public prices on internationally recognised commodities and futures exchange markets. The prices of goods exported and reported by the Brazilian taxpayer will be compared to the quotation prices of such goods, as provided by internationally recognised commodities and futures exchange markets, adjusted (upward or downward) by the average premium in line with market conditions, at the date of the transaction.

If there is no quotation, the comparable price may be determined based on databases of internationally recognised sectoral research institutions or based on the price established by governmental agencies and published in the Official Gazette.

This method is viewed as a best method rule so that in the case of commodities, the taxpayer is required to apply the PECEX in it export transactions.

In the case of financing transactions subject to transfer pricing control in Brazil (Brazilian taxpayer as the debtor), only the interest corresponding to the amount not exceeding the following interest rates, increased by a spread based on the market average to be defined by the Minister of Finance, may be considered deductible for IRPJ/CSLL purposes:

  • in the case of transactions performed in US dollars with a predetermined rate, the sovereign bonds of the Federative Republic of Brazil issued on the foreign market in US dollars;
  • in the case of transactions performed in Brazilian reais with a prefixed rate, the sovereign bonds of the Federative Republic of Brazil issued on the foreign market in Brazilian reais; and
  • for all other transactions, the LIBOR for a six-month period.

Currently, the mentioned annual spread is 3.5% for purposes of determining the deductibility of interest paid by the Brazilian taxpayer.

The same three parameters above apply for determining the minimum interest income a domestic entity must recognise on financing transactions subject to transfer pricing (Brazilian taxpayer as the creditor). However, the current annual spread rate (minimum amount to be included) is 2.5% in this case.

Brazilian laws do not allow a taxpayer to use methods not specified by law.

As a general rule, Brazil does not have the "best method" rule or a hierarchy of methods and the taxpayers are free to decide on the best method applicable to their transactions (Article 4 of Normative Ruling 1,312/12).

However, as from January 2013, transactions with commodities subject to quotation on internationally recognised commodities and futures exchange markets must be subject to the PECEX method (for exports) and the PCI method (for imports).

As a general rule, Brazilian transfer pricing rules provide for minimum/maximum statutory profit margins. No statistical measures are adopted.

The methods provided by the Brazilian transfer pricing rules must be used in order to calculate the maximum deductible expense upon importation from related parties and the minimum taxable revenue upon exportation to related parties.

For example, in relation to an import transaction, as long as the effective price charged by the related party located abroad is equal to or below the parameter price calculated in accordance with one of the methods available under the Brazilian transfer pricing rules, the Brazilian taxpayer is not subject to any transfer pricing adjustment. In this sense, a transfer pricing adjustment is only required if the effective price of importation is higher than the parameter price calculated in accordance with the rules.

Even though the transfer pricing rules provide for certain adjustments, such as freight and guarantee, the rules also provide that the value of the goods, services or rights must be adjusted in order to minimise the effects on the prices to be compared due to differences in business conditions, content and physical features.

However, it is not common for the taxpayers or the tax authorities to perform any comparability adjustments related to business conditions, content or physical features.

Additionally, the tax authorities have already stated that taxpayers may apply only the adjustments expressly listed by law. In this sense, the tax authorities may question any adjustments not explicitly permitted under the applicable law.

There is no specific legislation on the treatment of intangibles for transfer pricing purposes in Brazil.

It is important to mention that the payment abroad of royalties related to patents, trade marks and transfer of technology properly registered with the Brazilian Patent and Trademark Institute (Instituto Nacional de Propriedade Industrial, or INPI) is not subject to the Brazilian transfer pricing rules, but rather to specific local rules that deal with limitations for deductibility purposes.

There is no legislation or guidance regarding hard-to-value intangibles in Brazil. The fact that the payment abroad of royalties related to patents, trade marks and transfers of technology is not subject to the transfer pricing rules significantly reduces the focus of the tax authorities, as these are usually the most significant intangible transactions carried out by Brazilian companies.

There is no express definition under the Brazilian transfer pricing rules of cost contribution arrangements, Also, the Brazilian tax legislation does not formally establish a definition and/or a specific tax treatment for cost sharing arrangements.

However, doctrine and case law support in certain cases that if a company performing back-office activities charges related parties the costs incurred in these activities with no mark-up and based on reasonable allocation criteria, the charges do not target profits, but a mere efficient allocation of supporting activities and the respective administrative costs of the group as a whole. Other requirements may apply and a case-by-case analysis is required.

Although there is no consensus on the matter, the authors understand that there are reasonable arguments to implement cost sharing structures in Brazil, if:

  • the activities involved consist of back-office activities – eg, legal, accounting and human resources – that are not part of the companies' core business); and
  • only the actual costs attributable to the parties of the cost sharing agreement, based on reasonable allocation criteria, are charged to them.

Under a true cost sharing arrangement there are arguments to support that the transactions should not be subject to transfer pricing control in Brazil.

Notwithstanding the above, because cost sharing structures are not regulated by Brazilian tax legislation, they are not free of risks. Although there used to be private requests for rulings supporting that cost sharing structures could avoid the levy of certain taxes and transfer pricing control in Brazil, more recently the RFB has interpreted that cross-border cost sharing arrangements are services for tax purposes and, hence, subject to the tax treatment applicable to import of services.

In general, Brazilian rules do not permit a taxpayer to make affirmative transfer pricing adjustments after filing a tax return. Note that the transfer pricing adjustments are calculated on an annual basis and the relevant information is provided in the annual income tax return. Subsequent/late tax adjustments are allowed if the taxpayer had made a mistake and in this case, any additional corporate income tax (resulting from a "late" tax adjustment) should be paid with interest on delay.

In the domestic sphere, the sharing of information among federal, state and municipal tax authorities must be made in accordance with applicable legislation (Article 199 of the National Tax Code, or CTN).

In addition, Brazilian international tax treaties commonly contain provisions that permit the exchange of information between the relevant tax authorities. There is no express reference to the OECD Model in the treaties executed by Brazil, but the wording of these provisions are compatible with that of Article 26 of the 1992 OECD Model.

In addition, Executive Decree No 8,003/13 was published in May 2013, to promulgate the Agreement for the Exchange of Information Relating to Taxes between Brazil and the United States (TIEA), which had already been signed by the countries on 20 March 2007, but had not entered into force until the date of the Decree.

The TIEA enables the RFB and the US Internal Revenue Service (IRS) to exchange information “that may be relevant to the administration and enforcement of the domestic laws of the parties concerning the taxes covered by this Agreement”, including information that may be relevant for tax assessments and for investigations of criminal tax matters.

Moreover, there are general procedural rules for the exchange of information under Normative Ruling 1,226/11. Also, the legislation establishes the possibility of the Brazilian tax authorities to file a request for exchange of fiscal information via "rogatory" letters, diplomatic means or requests addressed directly to the tax authorities of a foreign country, provided that the legislation of that particular country allows the granting of information.

There is no APA programme in Brazil. However, it is possible to request before the Ministry of Finance a change in the fixed margins provided by law under the cost plus and the resale price methods (Ordinance No 222/08). Such mechanism requires substantial documentation to justify lower margins before the Brazilian tax authorities and has rarely been used in Brazil.

Also, Brazil has introduced the mutual agreement procedure (MAP) as one of the BEPS minimum standards. The MAP was formally introduced through Normative Ruling 1,669/16, which allowed both taxpayers domiciled in Brazil and the foreign authorities to request the Brazilian tax authorities to provide answers regarding conflicts upon interpreting treaties.

Additionally, it is possible to request tax rulings from the tax authorities. However, tax rulings must be related to the interpretation of tax legislation and are not applicable in order to obtain special treatment for certain taxpayers or transactions.

There is no APA programme in Brazil.

There is no APA programme in Brazil.

There is no APA programme in Brazil.

There is no APA programme in Brazil.

There is no APA programme in Brazil.

There is no APA programme in Brazil.

There is no APA programme in Brazil.

There are no specific penalties that apply in the transfer pricing context only.

Considering that the Brazilian transfer pricing rules aim at determining maximum deductible amounts and minimum taxable revenue for CIT purposes, any penalty related to transfer pricing matters will be related to the non-payment or underpayment of CIT.

As a general rule and according to Article 44 of Law 9,430/96, the penalty for lack of payment or underpayment of federal taxes (including CIT) is 75%. In the case of fraud or sham, the penalty is increased to 150%. Both penalties may be increased by 50% if the taxpayer does not co-operate with the tax authorities during a tax audit.

However, it is important to note that the amount of any penalties depends on the type of accusation supported by the tax authorities. In this sense, other penalties are applicable in specific situations.

Additionally, considering that the transfer pricing information is provided in the income tax return (ECF), the penalties in the case of wrong or lack of information are the ones applicable to the ECF. According to Article 6 of Normative Ruling 1,422/13 and Article 8-A of Decree-law 1,598/77, the Brazilian taxpayer may be subject to the following penalties regarding the ECF:

  • equivalent to 0.25%, for calendar month or fraction, of the net profits before the IRPJ and the CSLL, in the corresponding period, limited to 10%, if the legal entities do not file or file the ECF with delay; or
  • 2.3%, not lower than BRL100, of the value that is omitted, inexact or incorrect.

The fine of the first item is limited to:

(i) BRL100,000 for legal entities that in the previous calendar year accrued total gross revenues equal to or lower than BRL3,600,000; and

(ii) BRL5,000,000 for other legal entities.

The fine of item (i) is reduced by:

(i) 90%, when the ECF is presented within 30 days from the deadline;

(ii) 75%, when the ECF is presented within 60 days from the deadline;

(iii) 50%, when the ECF is after 60 days from the deadline but before any audit/notification; and

(iv) 25%, when the ECF is presented within the term established by the notification.

The fine of item (ii) is not due if the taxpayer corrects the omission, or the inexact or incorrect information, before a tax audit, and the fine is reduced by 50% if the correction is made within the term established by the notification.

Only the country-by-country report (CbC) was implemented in Brazil by Normative Ruling 1,681/16, which entered into force on December 2016.

The template for the CbC report is the same as the OECD’s template. The taxpayer must file the CbC report with its annual corporate income tax return (ECF) in a file named "Bloco W". The ECF and Bloco W must be prepared and filed by the taxpayer through a software platform annually released by the RFB up to the last business day of July of the year following the calendar year the ECF refers to.

Even though Brazilian transfer pricing legislation was inspired by the OECD Model Convention, Brazil does not follow the arm’s-length principle as globally established in the OECD Transfer Pricing Guidelines, since it is not a member of this organisation. In this sense, the Brazilian arm’s-length rules differ from those set forth by the OECD and most of the methods and rules established under the OECD Guidelines are not applicable in Brazil (such as RPSM and TNMM).

Brazil has its own transfer pricing rules, which are unique when compared with the rules from other countries. The current legislation provides rules and methods to determine the maximum amounts of deductible expenses and the minimum amounts of taxable revenues for Brazilian entities engaged in transactions with related foreign parties (or foreign residents in low-tax jurisdictions or under a privileged tax regime). The result from any chosen Brazilian transfer pricing method is deemed the Brazilian arm’s-length price (the so-called parameter price).

Thus, the main peculiarities of the Brazilian transfer pricing rules, in contrast to the majority of countries with TP regulations (including those that follow the OECD guidelines), may be summarised as follows:

  • the extensive list of deemed related foreign parties and list of transactions subject to transfer pricing control;
  • the need to calculate the parameter price per product, service or rights (the no basket approach is allowed) and calculation should be performed on an annual basis;
  • the minimum/maximum statutory profit margins established per economic sector regardless of the risks taken, functions performed and/or assets used by the Brazilian taxpayer; few adjustments permitted for comparison purposes;
  • the non-applicability of the Brazilian transfer pricing rules on royalty payments from the Brazilian taxpayer, provided there is a contract registered with the Brazilian Patent Office; and
  • the best method rule applicable in the case of commodities.

If transactions subject to the transfer pricing rules are within the limits set forth by the Brazilian transfer pricing rules, no tax adjustment will be necessary even if the arm’s-length price (also called the parameter price) is different from the effective price applied in the transaction subject to the transfer pricing rules.

The Brazilian transfer pricing rules do not follow the OECD arm's-length principle and Brazil has not adopted formulary apportionment.

In this sense, the purpose of the Brazilian transfer pricing rules is to determine the maximum deductible expense and the minimum taxable revenue upon import or export transactions, respectively.

Thus, the arm’s-length price (also called the "parameter price") adopted in Brazil is different from the effective arm's-length price determined under the OECD guidelines.

Even though Brazil is not a member of the OECD, it has been adopting certain BEPS project minimum standards (eg, country by-country report, mutual agreement procedure).

The MAP was formally introduced in Brazil through Normative Ruling 1,669/16 (replaced by Normative Ruling 1,846/18), and allowed taxpayers domiciled in Brazil and the foreign authorities to request the Brazilian tax authorities to provide answers regarding conflicts upon interpreting treaties.

In addition, Brazil also implemented the CbC report through Normative Ruling 1,681/16. The template for the CbC report is the same as the OECD’s template and the taxpayer must file the CbC report with its annual corporate income tax return (ECF) in a file named Bloco W. The ECF and Bloco W must be filed annually up to the last business day of July of the year following the calendar year the ECF refers to.

As a general rule, the measure of the risks assumed by each party is not relevant for transfer pricing purposes.

The UN Practical Manual on Transfer Pricing does not impact the Brazilian transfer pricing rules.

Although not related to the value added and services only, the Brazilian transfer pricing rules have one actual safe harbour that applies in the case of export transactions (services, goods or rights), which may be summarised as follows: when the average price adopted on such export sales transactions is equal to or greater than 90% of the average sales price charged in transactions with similar or identical goods, rights or services, carried out in the Brazilian market with unrelated parties (in the same period and under similar payment conditions), the Brazilian taxpayer is not required to evidence compliance with the parameter price calculated in accordance with one of the transfer pricing methods.

Apart from the above, for completeness purposes, note that the Brazilian legislation also sets forth two additional safe harbours, which do not apply in the case of sales transactions with goods, services or rights destined for buyers domiciled in low-tax jurisdictions and/or in a jurisdiction that prohibits disclosure of equity ownership.

The first one provides that a Brazilian taxpayer with a minimum 10% net profit (before the provision of IRPJ/CSLL) on its total export net revenues to related parties may demonstrate compliance with the transfer pricing rules only with the supporting documentation of the export transactions with related parties. The 10% net profit must be calculated based on the annual average profit of the current year and the two preceding years. Also, the referred-to safe harbour only applies if the net revenues of exports to related parties are not higher than 20% of the total export net revenues. Moreover, in the calculation of the net profit corresponding to these exports, the costs and expenses common to all sales must be allocated in accordance with the corresponding net revenue.

The second one provides that a Brazilian taxpayer with export net revenue in the calendar year not exceeding 5% of its total net revenue in the same period may demonstrate compliance with transfer pricing rules based on the export documents only.

In fact, the authors understand that these two safe harbours are "imperfect" safe harbours, because their adoption only shifts the burden of proof to the tax authorities. In other words, the tax authorities have the power not to accept the amount of taxable revenues recognised by the taxpayer in accordance with those two imperfect safe harbours if the tax authorities are able to evidence that the prices are not in accordance with the market conditions.

This is not applicable in this jurisdiction.

Not applicable, but the country's transfer pricing rules are unique.

Brazil does not require co-ordination between transfer pricing and customs valuation.

Any transfer pricing adjustment only has effect for corporate income tax purposes and should not change the price already charged by the foreign exporter or from the foreign importer. In this sense, the Brazilian entity is not legally required to adjust the customs value of imported or exported goods and services because of a transfer pricing adjustment.

There is no specific transfer pricing controversy process in Brazil. It follows the same process applicable for other tax controversies applicable to federal taxes (corporate income taxes).

Accordingly, if the tax authorities disagree with the transfer pricing calculations and/or documentation presented by the taxpayer, a tax assessment should be issued by the tax authorities.

If the taxpayer disagrees with the tax assessment, an objection/answer may be filed within 30 days of the assessment receipt and the administrative procedure is started (at the administrative courts). The administrative courts have three levels. No guarantee or deposit is necessary while the taxpayer discusses the case at the administrative level.

If the taxpayer wins at the administrative level, the case is considered ended/final. In the case of an unfavourable decision at the administrative level (no additional appeals to be filed at the administrative level), the taxpayer may file a lawsuit at the judicial courts and restart the discussion of the case, provided that taxpayer makes a pledge of assets or places a bond to guarantee the debt. Few exceptions may apply. The judicial courts also encompass three levels.

Please note that a settlement during the discussion of a case/tax assessments is not permitted in accordance with the current tax system in Brazil.

Judicial precedents are not well developed in Brazil. There are no relevant final judicial decisions on transfer pricing yet. A relevant transfer pricing controversy that deals with application of the PRL method in the case of import transactions is about to be ruled on at the third judicial level, but it relates to an issue that was solved in 2013 (upon the enactment of specific amendments to the transfer pricing law).

There are several transfer pricing matters under discussion at the administrative level. The main issues are related to the application of the rules for commodities and relevant adjustments, and how to apply the rules in the case of an interposed party, among others.

In the case of uncontrolled transactions, the general rule is that there are no restrictions of payments to be remitted abroad (provided the Central Bank rules are complied with), but there may be restrictions for deductibility purposes, such as in the case of certain types of royalties due to a foreign party, which are not subject to the standard transfer pricing rules, but to specific deductibility rules.

Specific deductibility rules may also apply to payments to low-tax jurisdictions or to beneficiaries under a privileged tax regime, in addition to the need to comply with the Brazilian transfer pricing rules.

In the case of controlled transactions, the restrictions for deductibility purposes applicable to royalties may also apply for remittance purposes. As mentioned, as a general rule, payment of royalties is not subject to the standard transfer pricing rules, but to specific deductibility rules.

This is not applicable in this jurisdiction.

This is not applicable in this jurisdiction.

There are no specific transfer pricing rules in Brazil regarding "secret comparables". However, some tax authorities have been using a database available to foreign trade (the so-called SISCOMEX system) as a source of information for comparability purposes and accordingly to issue tax assessments. It is still a controversial matter and the taxpayer normally challenges this procedure as illegal when the taxpayer does not have public access to the same source of information.

Although COVID-19 may have resulted in the decrease of profit margins and increase of expenses at the Brazilian taxpayer level, no changes in the transfer pricing rules have been implemented during the pandemic.

Specifically regarding transfer pricing, no emergency legislation has been enacted as a result of the COVID-19 pandemic. Specific legislation and initiatives have been issued to postpone the payment of certain Brazilian taxes (such as PIS/COFINS), as well as to postpone the deadline to file the CIT ancillary obligation (ECF).

As a rule, the taxpayer must file the ECF (which includes the CbC report) by the last business day of July of the year following the period to which it refers. Due to the COVID-19 pandemic, the filing of the ECF for the calendar year 2019 was postponed until the last business day of September 2020.

The tax authorities have not yet published guidelines regarding the filing of the ECF for calendar year 2020.

At the beginning of the pandemic, audits probably stalled, but the tax authorities are still auditing companies and issuing tax assessments on a regular basis. In most of the cases, the tax authorities may review relevant information from the IRS system, without the need to visit the taxpayer.

Trench Rossi Watanabe

R. Arquiteto Olavo Redig de Campos
105 - Chácara Santo Antônio (Zona Sul)
São Paulo – SP
04711-904

+55 11 3048 6800

clarissa.machado@trenchrossi.com www.trenchrossi.com
Author Business Card

Trends and Developments


Authors



Trench Rossi Watanabe is one of the largest law firms in Brazil, with expertise in all areas of law and offices located in São Paulo, Rio de Janeiro, Brasília and Porto Alegre. The tax team is specialised in all areas of tax (litigation and non-litigation), comprising 16 partners and 38 associates, including some of Brazil’s most highly regarded consulting and trial attorneys, and with a diverse group (eight women tax partners). Trench Rossi Watanabe has a consolidated position on local and global transfer pricing matters. At the consulting level, the firm has been working on complex cross-border transfer pricing projects involving multiple jurisdictions. At the litigation level, it has been obtaining relevant and unique decisions on transfer pricing matters in both administrative and judicial matters. The financial and accounting backgrounds of the tax team offer a unique expertise that effectively helps clients in the solution of problems from a business standpoint and in providing high-quality transfer pricing work.

Conversion of the Brazilian Transfer Pricing Rules to the OECD Model – Potential Impacts and Transition Plan

While the Brazilian rules primarily aim at determining the minimum taxable income and maximum deductible expenses for purposes of calculating the Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) ("parameter price"), the OECD rules include a complete analysis of the operations carried out based on the functions developed, assets used and risks assumed by the parties that perform the operations subject to control with the purpose to achieve the "arm's-length price".

The coexistence of these two systems can, recognisably, result in tax inefficiencies.

Some of the main criticisms of the Brazilian transfer pricing rules include:

  • the prevalence of fixed margins for the calculation of the parameter price, in disregard of the market conjuncture at the time of the transactions and the peculiarities applicable in each case;
  • the occasional complexity of the calculations that must be done by operation, not admitting the so-called basket approach for calculation purposes nor for making adjustments;
  • the absence of internationally recognised methods (such as the profit split method, or PSM, and the transactional net margin method, or TNMM) that deal, generally, with the allocation of profits generated throughout the production and distribution chains;
  • a focus on operations with tangible goods and services, which leads to, for example, difficulties in taxation and compliance with transfer pricing rules in the case of operations with intangibles (due to lack of regulation on the subject);
  • the absence of advance pricing agreements (APAs), which companies make with the authorities to agree, in advance, on the applicable prices and/or profit margins that will apply during a specified period; and
  • the inefficiency of rules related to mutual agreement procedures (MAPs), which are agreements between the competent authorities of the countries with treaties to avoid double taxation.

In this context, when considering the recent official manifestations about Brazil's interest in joining the OECD, the national transfer pricing rules have become the target of greater debate, since the legislation on this matter is one of the main obstacles for the country to be admitted into the organisation.

For this reason, representatives of the Brazilian Federal Revenue Service (RFB) and the OECD joined forces in February 2018 to develop a joint project to examine the main similarities and divergences between the transfer pricing rules adopted by Brazil and the guidelines established by the OECD, as well as to define strategies for future alignment.

Brazilian Federal Revenue Service and OECD Report on Strategies to Achieve Alignment

Based on the analysis performed, the joint report "Transfer Pricing in Brazil: Towards Convergence with the OECD Standard" was published in December 2019.

Despite establishing necessary improvements for the expansion of the Brazilian market internationally, the conclusions of the referred-to project require the elaboration of a detailed transition plan so that this alignment becomes not only feasible, but also does not bring losses and uncertainty for taxpayers.

Although Brazil is not a member of the OECD and consequently does not apply its guidelines, the Brazilian transfer pricing legislation is said to be inspired by the guidelines internationally disseminated by the organisation, as can be seen in the explanatory memorandum of the bill that originated Law 9,430/1996. Motivation Exposition of the PL No 2,448/96: "In the specific case, in accordance with the rules adopted in the OECD member countries, rules are proposed that enable the control of the so-called "Transfer Pricing", in order to avoid the practice, harmful to national interests, of transferring funds abroad, through the manipulation of prices agreed in imports or exports of goods, services or rights, in operations with related persons, resident or domiciled abroad."

The Brazilian legislation determines specific methods that must be adopted in imports or exports, as well as financial transactions, carried out between a taxpayer established in Brazil with related parties abroad or with a party located in a country with favoured taxation. Thus, the taxpayer may choose the method that is most convenient for him or her (there is no best method rule), except for operations with commodities.

Furthermore, the Brazilian transfer pricing rules must be applied per product and per transaction (ie, the basket approach is not allowed), with some exceptions. In this sense, it is possible to apply different methods for each product and transaction, provided that the method is correctly applied during the whole calendar year.

Study Raises Doubts over the Flexibility and Efficiency of Brazilian Transfer Pricing Methods

In general, it may be observed that Brazilian methods are direct, in the sense that they establish calculation formulas with minimum (and maximum, depending on the transaction) margins. On the other hand, they bring little flexibility, allowing for few adjustments for comparability with transactions with third parties.

The guidelines proposed by the OECD point to the arm's-length principle as the main guide for transfer pricing issues. They seek to obtain the "fair price" through a detailed analysis of related-party transactions vis-à-vis similar transactions between third parties, allowing for an almost "infinite" list of adjustments so that transactions can be matched and compared in several aspects, which are not limited to the price of the good, service or right, but also include the profit margin and other relevant metrics.

Such inefficiency of the Brazilian legislation was one of the topics highlighted in the joint study conducted by the OECD and the RFB, which aimed at evaluating the similarities and differences between the transfer pricing structures set by the Brazilian legislation and the OECD guidelines.

According to the study, Brazilian transfer pricing rules do not present efficient solutions to solve issues related to some specific transactions, as follows:

  • the use or transfer of intangibles;
  • the provision of intra-group services;
  • business restructurings;
  • cost contribution agreements; and
  • issues related to the allocation of profits to permanent establishments.

Such inefficiency could be overcome if the Brazilian legislation had regulated profitability-based methods, such as the TNMM and PSM, which are internationally recognised as efficient for allocating profits when traditional methods are not effective.

These gaps identified by the joint study stress some difficulties that –  for interpreters familiar with Brazilian transfer pricing legislation – do not come as a surprise. In fact, some points raised in the study have already been the subject of debate for almost two decades in the Brazilian legal environment. In 2001, for example, Bill No 4,695 was proposed to reform the Brazilian transfer pricing legislation.

The joint study also pointed out that one of the main impacts of the gaps in Brazil's transfer pricing rules is the increased risk of double taxation (or double non-taxation) and base erosion and profit shifting. Such consequences, besides causing the loss of tax revenues or unfair tax revenues ("tax twice"), end up negatively affecting the country's ability to attract trade and investment since they create distortions and legal uncertainties.

The study criticised the "potentially misleading" perceptions of simplicity that are usually attributed to the Brazilian system, especially because of the lack of a comprehensive comparability analysis (including functional and risk analysis), the freedom to select the most convenient method for the taxpayer, and the use of fixed margins, among others. Despite recognising some of these points as positive in the Brazilian legislation, the study pointed out that the complexity of the current rules is evident in other aspects, especially with regard to the item-by-item approach (unfeasibility of the "basket approach") to the strict comparability standard, and the documentation requirements in certain situations.

The study also mentioned that some elements of the Brazilian legislation, such as the use of fixed margins, may lead to results that are not in line with the arm's-length principle since they do not take into consideration the specificities of the transactions performed. This could generate distortions through the application of excessively high (or excessively low) profit margins that do not match the market reality and result in negative consequences, such as double taxation.

Legal Uncertainty and Increased Costs among the Potential Issues Regarding Full Alignment with the OECD Guidelines

After presenting all the divergences and problems, the joint report concluded with a recommendation for full alignment of the Brazilian rules to the OECD Transfer Pricing Guidelines. This conclusion, however, is open to discussion, especially when considering that such alignment, as formerly proposed, implies the complete discarding of all the rules currently in effect and ruling out the admittedly positive aspects of the legislation currently applicable in Brazil.

On one hand, national transfer pricing rules can lead to double taxation or double non-taxation scenarios, so the implementation of the guidelines established by the OECD would provide more efficient ways to mitigate such situations, in view of the fact that most states follow the OECD guidelines.

On the other hand, in most of the situations, the current transfer pricing rules allow both taxpayers and the Brazilian tax authorities to be able to easily identify and apply the available methods for the determination of the parameter price, in order to establish the minimum taxable income and the maximum deductible expenses for IRPJ and CSLL taxation purposes. This fact may allow the reduction of costs related to compliance with the transfer pricing rules in Brazil, as well as the reduction of the volume of disputes between the tax authorities and taxpayers, ensuring a scenario of greater legal certainty on this matter.

In the authors' view, although it is necessary that Brazilian taxpayers, under the context of globalisation, be open to changes in the transfer pricing legislation with the main goal of achieving an allocation of profits among countries that actually reflects the economic effects and risks taken by each party, the joint study issued in 2019 did not seem to take into account the situation of many taxpayers that had already operated for several years in compliance with the Brazilian transfer pricing rules and some relevant matters regarding implementation.

It is evident that for these, or some of these, Brazilian taxpayers, the full and immediate alignment with the OECD guidelines without adjustments to try to obtain a balance between the two approaches may result in a scenario of legal uncertainty, besides leading to a potential increase in the costs necessary for compliance with the transfer pricing rules.

The internalisation of the guidelines established by the OECD, on the other hand, is imperative if Brazil would like to be viewed as a relevant and developing market across the world. The OECD guidelines would allow the incorporation of new and relevant resources in the Brazilian legislation (especially new methods for determining the "benchmark price"), which would facilitate the filling of some gaps currently existing in national rules, especially with regard to the control of specific operations, as in the case of transactions involving intangibles.

However, it should be made with the necessary adaptations so that it would be possible to recognise the importance of some characteristics of the Brazilian legislation, especially its simplicity and the legal security it may provide to taxpayers, mainly in the case of standard transactions.

Planning Will Be Vital to the Success of Implementing a "Dual System" Approach

The joint study conducted by the OECD and the RFB rejected the possibility of both legislations applying at the same time (in accordance with an option to be elected by the taxpayer). According to the conclusions stated in the report "Transfer Pricing in Brazil: Towards Convergence with the OECD Standard": "1042. Full alignment is also necessary because, otherwise, significant gaps would remain in the system with negative effects on tax certainty, the compliance burden, as well as risks of persisting double taxation and loss of tax revenue. A partial alignment that would address only the missing elements in the current framework but would maintain all the other features which create divergences and therefore lead to double taxation and losses of revenue would make it difficult for Brazil to both integrate global value chains and to accede to the OECD. A partial alignment in the form of allowing for the possibility of opting-out of the current regime to apply rules that follow the arm’s length principle would lead to transfer pricing “system shopping”, and consequently to a loss of revenue. It would allow continued BEPS practices, as taxpayers would cherry-pick the regime they wish to apply with the motivation to pay less tax...

"This would also create an additional burden on the tax administration, which would have to maintain and administer two different systems, the interaction of which would create an additional layer of complexity." (OECD/Brazilian Federal Revenue, 2019, page 278.)

Of course, from a pure Brazilian standpoint, this "dual system" would be the best and the most convenient approach, as the Brazilian taxpayers would have flexibility in the application of the transfer pricing rules. The authors acknowledge, however, that this position does not meet the goals of the OECD guidelines in the sense that it may not solve the main goal of the OECD guidelines, which is to allocate the profits in accordance with the specific situation of each taxpayer.

Thus, the real challenge, in the authors' view, to accommodate the goals and needs of the taxpayers and of the OECD guidelines, is to carefully review which portion of the current Brazilian transfer pricing legislation (or new local provisions) should be in place together with the OECD Transfer Pricing Guidelines.

This will not be an easy task.

In fact, it should require great legislative effort so that an effective and efficient alignment with the OECD occurs, without great losses to taxpayers that already perform their activities in accordance with the current rules.

From a practical standpoint, several issues should be considered for this change to be successful. For instance, it is also necessary to take into account the "learning" time required by both the tax authorities and taxpayers (and the corresponding costs) to be able to perform an effective comparability analysis (benchmark analysis), as well as for the parties to have access to secure sources of information.

Brazil has very few sources of information about financial data and transactions between third parties. Most companies in Brazil are set up as limited companies and are not required to disclose information. Closed corporations disclose only some financial information. Publicly traded corporations have additional obligations, including to the Securities and Exchange Commission (CVM).

As in other Latin American countries, in the event of a change in the local transfer pricing legislation to follow the OECD guidelines, taxpayers and the tax authorities will have to make use of foreign sources of information and make adjustments not only in relation to the comparability of the transactions themselves, but also in relation to additional factors, such as exchange rate effects and country risk.

Standard & Poor's Capital IQ database is being widely used by Latin American taxpayers as well as by tax authorities (mainly Mexican) in the application of some transfer pricing methods. This database has information about companies listed in North America (mainly the United States) and globally, as well as information about some private companies. As a general rule, a detailed analysis of this database is necessary to choose comparable companies and transactions, and to make the necessary adjustments. This is definitely not a simple job and requires specialised economic and financial knowledge.

Facing this scenario, the authors believe it is fundamental that an extremely detailed and prudent transition plan be designed, with the purpose of promoting the change in the transfer pricing rules, not only gradually but also in a harmonic and coherent manner with the specificities and difficulties of the Brazilian market.

Survey Indicates Change to the Brazilian Transfer Pricing Legislation Could Be Imminent

A simple and full "transplant" of the guidelines established by the OECD is not enough to fill the gaps in the current legislation, nor will it be able to provide the necessary mechanisms for taxpayers to bring their transactions closer to arm's length. On the contrary, if these rules are not carefully implemented, the resulting effects may go against the objectives of their implementation, leading to an increase in litigation, and, consequently, an increase of the so-called Brazil cost, considered as one of the major investment repellents in the country.

In this context, it is important to mention that more recently (in July 2020), as a result of the discussions after the joint report was issued in December 2019, the OECD and the RFB launched a survey seeking public collaboration in the development of safe harbours and other simplification measures on Brazilian transfer pricing matters.

The main objective of the survey was to offer the opportunity for taxpayers and interested parties to present their comments related to situations where specific safe harbour regimes may be needed, considerations regarding the use of APAs for specific sectors, and other simplification measures.

The authors believe that this may be a good sign to expect a new proposal for a change of the Brazilian transfer pricing legislation that, in general terms, would be in accordance with the OECD guidelines, but, at the same time, have provisions (such as safe harbours) that allow simpler compliance in the case of specific transactions. Let's wait for the next steps...

Trench Rossi Watanabe

R. Arquiteto Olavo Redig de Campos
105 - Chácara Santo Antônio (Zona Sul)
São Paulo – SP
04711-904

+55 11 3048 6800

clarissa.machado@trenchrossi.com www.trenchrossi.com
Author Business Card

Law and Practice

Authors



Trench Rossi Watanabe is one of the largest law firms in Brazil, with expertise in all areas of law and offices located in São Paulo, Rio de Janeiro, Brasília and Porto Alegre. The tax team is specialised in all areas of tax (litigation and non-litigation), comprising 16 partners and 38 associates, including some of Brazil’s most highly regarded consulting and trial attorneys, and with a diverse group (eight women tax partners). Trench Rossi Watanabe has a consolidated position on local and global transfer pricing matters. At the consulting level, the firm has been working on complex cross-border transfer pricing projects involving multiple jurisdictions. At the litigation level, it has been obtaining relevant and unique decisions on transfer pricing matters in both administrative and judicial matters. The financial and accounting backgrounds of the tax team offer a unique expertise that effectively helps clients in the solution of problems from a business standpoint and in providing high-quality transfer pricing work.

Trends and Development

Authors



Trench Rossi Watanabe is one of the largest law firms in Brazil, with expertise in all areas of law and offices located in São Paulo, Rio de Janeiro, Brasília and Porto Alegre. The tax team is specialised in all areas of tax (litigation and non-litigation), comprising 16 partners and 38 associates, including some of Brazil’s most highly regarded consulting and trial attorneys, and with a diverse group (eight women tax partners). Trench Rossi Watanabe has a consolidated position on local and global transfer pricing matters. At the consulting level, the firm has been working on complex cross-border transfer pricing projects involving multiple jurisdictions. At the litigation level, it has been obtaining relevant and unique decisions on transfer pricing matters in both administrative and judicial matters. The financial and accounting backgrounds of the tax team offer a unique expertise that effectively helps clients in the solution of problems from a business standpoint and in providing high-quality transfer pricing work.

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