Brazilian Transfer Pricing Rules Evolution

The Brazilian transfer pricing landscape underwent significant changes recently due to Temporary Measure 1,152/2022. Prior to this, Brazilian rules differed considerably from the OECD Transfer Pricing Guidelines, relying on fixed markup rates and mandatory price calculation formulas. However, with the introduction of Temporary Measure 1,152/2022, Brazil aims to align more closely with the OECD principles.

Related Party Definitions

Temporary Measure 1,152/2022 defines related parties as those influenced directly or indirectly by each other, potentially affecting transaction terms. This encompasses various entities, including controlling shareholders, affiliated companies, and entities with shared interests or control.

Documentation and Compliance

The document highlights the importance of documentation, such as invoices, agreements, and commercial records, in supporting corporate income tax returns. There is no exemption from documentation obligations for related party transactions, and taxpayers must provide detailed information on methods, price support, and calculation records when requested by tax authorities.

Transfer Pricing Methods

Temporary Measure 1,152/2022 introduces a broader range of transfer pricing methods, bringing Brazil closer to OECD guidelines. These methods include Cost-Plus Markup, Resale Price Less Markup, Compared Uncontrolled Prices, Transactions Net Margin, and Profit Split.

Country-by-Country Reporting (CbCR)

Brazil introduced Country-by-Country Reporting (CbCR) as part of BEPS Action 13, which applies to multinational entities based in Brazil with significant revenues. The CbCR must be filed with the Corporate Income Tax Return and serves as an additional tool in tax audits.

Tax Havens and Blacklists

Brazil distinguishes between tax havens and countries with privileged tax regimes, maintaining a list of jurisdictions with lower tax rates or inadequate information sharing.

Penalties and Interest Charges

Non-compliance with transfer pricing documentation and regulations can lead to penalties, interest charges, and tax adjustments. Penalties can range from untimely filing fines to substantial penalties for evasion, fraud, or collusion.