New Brazilian Transfer Pricing Legislation

On December 28, 2023, the Brazilian government issued the Provisional Measure No. 1,152, which significantly amended our TP legislation (the "New TP Legislation"). This amendment was the result of an effort to align Brazilian TP rules with the OECD guidelines in order to address US restrictions posed on American parent companies and to ease Brazil’s acceptance as an OECD member.

The purpose of TP legislation is to prevent taxpayers from carrying out a disguised profit distribution to a related entity abroad by means of setting up an artificial pricing arrangement through intragroup transactions.

Contrary to the OECD guidelines, Brazilian TP rules have historically opted to follow methods that established fixed profit margins that should be mandatorily applied to determine the maximum price ceiling for imports or the minimum revenue for exports under controlled transactions.

The New TP Legislation will put an end to the application of fixed profit margins as the arm’s length principle is being fully incorporated into our legal system. Therefore, compliance with Brazilian TP rules will require that the price charged under controlled transactions effectively follows market conditions and observe the arm’s length principle. One may even say that the New TP Legislation is significantly consistent with the OECD Transfer Pricing Guidelines.

The application of the New TP Legislation will be mandatory from 2024 onwards. Taxpayers can nonetheless opt to adopt such methodology in 2023 at their own discretion.

Finally, we highlight that the New TP Legislation has been introduced by the issuance of a Provisional Measure ("PM"). A PM is a sort of provisory law proposed by the government that must be further approved by the House of Representatives and the Senate to be converted into a statutory law. The House has already approved the PM, but it must still be approved by the Senate.