Brazil

In 2023, Brazil's Transfer Pricing rules underwent a significant change with the publication of Law No. 14.596/2023, which took place on 15 June 2023.

Historically, Brazil had very specific rules for the control of Transfer Pricing, with the application of fixed and presumed margins for the calculation of the reference price.

The new legislation aims to align the Brazilian Transfer Pricing rules with the Transfer Pricing structure of the Organisation for Economic Co-operation and Development (OECD) to be applied from 2024.

The Receita Federal do Brasil published Normative Instruction No. 2.161/2023 to regulate the general part of the new Transfer Pricing rules, but there are still specific points of the legislation that are still pending regulation by the Receita Federal do Brasil, such as the application of Transfer Pricing rules in corporate restructurings involving related parties.

Below, we summarise the main changes introduced by Law No. 14.596/2023, without prejudice to others that may be important depending on the case under analysis:

Consolidation of the arm's length principle

• Express adoption of the arm's length principle for the determination of the taxable base for Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) in related party transactions.
• One of the criticisms of the previous rule was the use of fixed margins for the calculation of the reference price, which could lead to a transaction that did not effectively reflect the arm's length principle.

Scope of the new Transfer Pricing rules

• Controlled transactions cover any commercial or financial relationship between related parties, whether directly or indirectly.
• Previous Transfer Pricing legislation did not include, for example, transactions involving intangibles. Transactions involving royalties between related companies were not subject to Transfer Pricing rules in Brazil.
• The new rules not only apply to established controlled transactions but also extend to transactions involving third parties in more complex and indirect structures.

Country-by-Country, Global File and Local File Reporting

In order to demonstrate compliance of controlled transactions with the arm's length principle, taxpayers should submit the following information to the Receita Federal do Brasil:

1. Country-by-Country Report: with information on the global allocation of income and assets, as well as income taxes paid by the group, together with indicators related to the group's global economic activity.
2. Global file: containing information on the structure and activities of the group, as well as other entities that are part of the multinational group.
3. Local file: information on controlled transactions and the related parties involved in those transactions.

The deadline for submission of the Global File and the Local File is the last working day of December 2025 (for 2024 operations). The submission shall be made through the digital process, in the Receita Federal do Brasil system.

From 2025 onwards, the Global File and the Local File must be submitted 3 months after the deadline for submission of the ECF (corporate income tax return) for the relevant calendar year.

OECD Guidelines - Subsidiary application

Express provision for the subsidiary application of the guidelines presented in the OECD report ("OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration 2022") as a source of interpretation of the Transfer Pricing control rules.