On 28 September 2023, Brazil published Normative Instruction Nº 2,161 (IN 2,161/23) that governs Brazil’s recently established new transfer pricing law. The new legislation explicitly adopts the arm’s length principle into the Brazilian legal framework, aligning it with OECD standards. The new regime is set to be mandatory beginning in 2024, though taxpayers can choose its application for 2023.
Key highlights of the Normative Instruction:
- Taxpayers are required to prepare detailed master file or local file documentation in accordance with the provisions of Articles 59 and 60 of the Normative Instruction if the total value of the controlled transactions is equal to or greater than BRL 500 million.
- Taxpayers are required to prepare simplified master file or local file documentation in accordance with the provision of Article 61 of the Normative Instruction if the total value of the taxpayer’s-controlled transactions falls between BRL 15 million and less than BRL 500 million
- If the total value of the taxpayer’s controlled transactions in the year prior is less than BRL 15 million, the requirement for preparing the Local file is waived (and the Master file requirement is also waived in this case).
Penalties for non-compliance with documentation requirements encompass the following:
For both the Master and Local files:
- A penalty of 0.2% of the taxpayer’s gross income for each month or portion of a month is imposed if the documentation is submitted late.
- A penalty of 3.0% of the taxpayer’s gross income is imposed if the documentation does not meet the stipulated requirements.
- Pertaining to the Master file, a penalty is equivalent to 0.2% of the group’s consolidated revenue in the previous year in cases of inaccuracies, omissions, or incomplete information. This penalty can be waived if duly proven formal errors or immaterial information are identified.
- A fine corresponds to 5% of the value of the controlled transaction(s), as assessed by the tax authority when there is a belated submission of information or documentation required by the tax authority during a tax procedure or prior inspection measure.
However, the penalties for non-compliance regarding transfer pricing documentation range from BRL 20,000 (approx. USD 4,000) to BRL 5,000,000 (approx. USD 1,000,000).
