Brazil has abandoned its rigid transfer pricing system in favour of OECD-aligned rules under Law No. 14,596/2023, requiring multinationals to adopt the arm's length principle, implement comprehensive documentation, and fundamentally restructure their cross-border pricing strategies—with strict penalties for non-compliance starting from January 2024.

RF Report

Brazil has fundamentally restructured its transfer pricing system through Law No. 14,596/2023 and RFB Normative Instruction No. 2,161/2023, marking a decisive shift toward OECD standards.

The arm’s length principle takes centre stage

The cornerstone of this transformation is Brazil’s adoption of the arm’s length principle, replacing the rigid prescriptive system of Law No. 9,430/1996. Transactions between related parties must now reflect conditions that independent entities would establish in comparable circumstances, eliminating the previous fixed-margin approach that ignored sectoral nuances.

This new framework dramatically expands what constitutes a controlled transaction. Beyond traditional goods and services, the legislation now encompasses intangible assets, cost-sharing arrangements, business restructurings, financial instruments including loans and derivatives, and even share transfers. This comprehensive scope requires companies to examine virtually all intragroup dealings.

Six methods replace the old regime

Brazilian legislation now provides six transfer pricing methods applicable across all transaction types:

1. Independent Comparable Price (ICP): Compares the price charged in controlled transactions with prices of comparable transactions between independent parties. Regarded as the most direct method when reliable comparables are available.

2. Resale Price Minus Profit (RPM): Applied when a reseller purchases products from a related party and resells them to independent parties, with an appropriate gross margin deducted from the resale price.

3. Cost Plus Profit (CPP): Used when a supplier in a controlled transaction sells products to a related party by adding an appropriate profit margin to the costs incurred in production or service delivery.

4. Transaction Net Margin (TNM): Examines the net margin obtained in controlled transactions by comparing it with margins of comparable transactions between independent parties. This method represents a key innovation in the new legislation.

5. Profit Split Method (PSM): Divides the combined profits from controlled transactions between related parties based on each party’s economic contribution. Particularly relevant for transactions involving unique intangibles.

6. Other Methods: Permits the use of alternative or combined methods, including evaluation techniques, provided they are technically justified and comply with the arm’s length principle.

Comparability analysis and documentation requirements

Every transfer pricing determination now demands thorough comparability analysis examining functional aspects (functions performed, assets employed, risks assumed), product characteristics, contractual terms, economic circumstances, including market conditions and competition levels, and business strategies.

The documentation obligations mirror OECD standards with two distinct files.

  • The Master File provides a consolidated multinational group overview covering organisational structure, economic activities, global transfer pricing policies, and profit allocation.
  • The Local File details Brazilian entity operations with functional analysis, controlled transaction identification, method selection and application, comparability studies, and segmented financials.

Filing deadlines

Filing deadlines for the 2024 fiscal year documentation extend until 31 December 2025. From 2025 forward, local files must be submitted within three months after the ECF deadline—typically 31 October for standard calendar-year filers. Companies with controlled transactions below BRL 15 million annually are exempt from local file requirements.

Groups exceeding EUR 750 million in consolidated annual revenues must file Country-by-Country Reports containing jurisdiction-specific data on revenues, profits, taxes, and employee counts. Additionally, IN RFB No. 2,246/2024 mandates electronic registration of all commodity-related controlled transactions, with Executive Declaratory Act Copes No. 1/2025 approving the Raw Materials Transaction Register Manual version 2.0.

Adjustment mechanisms and penalties

The legislation introduces flexibility through spontaneous adjustments, permitting taxpayers to correct arm’s length deviations until 31 December of the year following the transaction year, avoiding penalties for self-identified issues. Compensatory adjustments allow documented exclusions from actual profit when costs fall below calculated arm’s length limits.

Tax authorities retain primary adjustment powers, adding compliant results to tax calculation bases. Notably, IN RFB No. 2,161/2023 permits using comparables available until ECF delivery.

Penalties for documentation failures are substantial. Late submissions incur 0.2% monthly fines on gross income. Submissions lacking requirements trigger 3% gross income fines (minimum BRL 20,000, maximum BRL 5,000,000). Inaccurate CbC Reports face 0.2% fines on prior-year consolidated multinational group income.

Law No. 14,596/2023 also addresses royalty and technical assistance payment deductibility, disallowing deductions when the same amount creates deductions for related parties or when Brazilian deductions don’t generate taxable income for beneficiaries.

APAs and OECD alignment

Advance Pricing Agreements (APAs) represent a forward-looking innovation, enabling companies to predetermine transfer pricing methodologies for fixed periods, enhancing predictability and reducing disputes. The Ministry of Finance will issue specific APA regulations effective January 2025.

Importantly, IN RFB No. 2,161/2023 establishes the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 as subsidiary interpretative sources, except where they conflict with Brazilian law or RFB acts. While this brings Brazil closer to dynamic OECD methodology and international standard evolution, the RFB’s interpretative supremacy may occasionally create divergences from global practices.

For multinationals, the message is clear: Brazil’s transfer pricing revolution demands immediate attention, robust documentation systems, and strategic realignment of intragroup pricing policies.