On 12 April 2022 an event was held to present the outline of the new transfer pricing rules drafted by Brazil following a consultation process with the OECD.

After Brazil had expressed the intention to become a full OECD member, Brazil and the OECD began a project in February 2018 to look at the similarities and divergences between the transfer pricing rules in Brazil and the OECD guidelines. On 18 December 2019 the OECD issued a report entitled Transfer Pricing in Brazil: Towards Convergence with the OECD Standard. During 2020/21 there was work on policy design; administration and capacity building; and simplification, including safe harbours.

Controlled transactions

The meeting was informed that the new transfer pricing rules will be applicable to all controlled transactions. The definition of related parties is principle-based but supported by a list of situations to which it applies, to provide certainty. The system will involve delineation of the actual transaction, based on the comparability factors which include the economically relevant characteristics. The scope of the rules is widened to include all transactions between related parties whereas the previous system applied only to imports, exports and loans.

Transfer Pricing Methods

All the OECD transfer pricing methods are to be introduced, including the TNMM and the transactional profit split method, and the most appropriate method should be selected. The use of other methods is also permitted, for example valuation methods, where other methods are not appropriate. There will be a choice of the tested party, domestic or foreign.

The comparability analysis is the cornerstone of the new system. There will be guidance on comparability; on the reliability of data on comparable transactions; on the appropriateness of comparability adjustments; and on the arm’s length principle (ALP) and its application.

Adjustments

Primary adjustments will be possible for the tax administration. Elimination of double taxation will be possible through corresponding adjustments. The mutual agreement procedure will be available to resolve issues. Also, there will be secondary adjustments to address the problem of profit shifting. The amount overpaid can be treated as a deemed loan made to the related party in the other jurisdiction, with an option for repatriation of the funds by the taxpayer.

Commodities

Commodity transactions are given special attention, to address ongoing revenue losses. Principle-led guidance is focusing on capturing the market value of the commodity. Comparability adjustments will be possible. For determining the pricing date there will be documentation requirements as evidence of the relevant date and market price used.

Other types of transaction

There will be a definition of the concept of an intangible for transfer pricing purposes and guidance on situations where there are unique, valuable intangibles with limited or no comparables available.

Rules on intragroup services will cover the situations where a charge can be made for a service and when no charge can be made. A direct or indirect charge method will apply for centralised services. Low value-adding services will be one of the safe harbours.

On cost contribution arrangements (CCAs) there will be provision for development CCAs or service CCAs. The rules will determine when taxpayers are participants or performing other roles; and will outline appropriate compensation, including on entry or departure from CCAs.

There will be guidance on transfer pricing for business restructurings, covering transfers of functions, risks, activities carrying profit potential and appropriate comparables.

Transfer pricing rules will apply to financial transactions, including not just intragroup loans but cash pooling, debt arrangements, guarantees and insurance. The transfer pricing rules will not preclude other interest limitation rules.

Documentation

Transfer pricing documentation will be in line with best practice. In addition to country-by-country reporting which is already in operation there will be provision for the complete three-tiered documentation including a master file and local file.

Next steps

There will be discussions with different sectors that are most affected by the changes in the law. Input received from the discussions will be processed and the legislative package will be finalised and passed to Congress for approval.