On 29 December 2022, the outgoing Brazilian President issued draft legislation MP 1.152 to align Brazil’s unique transfer pricing system with the OECD Transfer Pricing Guidelines. The news rule will be compulsory for 2024, for fiscal year 2023, Brazilian taxpayers can choose between the existing transfer pricing rules and the new rules.
The new legislation would have the following features;
The new legislation is consistent with the OECD transfer pricing guidelines however it does not specifically mention the OECD TPG. The new rules make clear reference to the arm’s length principle.
The definition of related parties has been broadened where it considers not only conventional controlled transactions but also uncontrolled transactions when one of the parties is resident or domiciled in a country that taxes income at a rate lower than 17% or zero.
All methods available in the OECD TPG can be used, including unspecified methods. The new rule provides specific guidance on the pricing of controlled transactions in intangibles, intra-group services, financial transactions and cost contribution arrangements. The guidance is in line with the latest OECD TPG, which was revised in 2022.
Penalties for non-compliance regarding transfer pricing documentation have been introduced which is range from BRL 20,000 (approx. USD 4,000) to BRL 5,000,000 (approx. USD 1,000,000).
