The alignment of Brazilian Transfer Pricing with OECD

published on 20 January 2023 | reading time approx. 2 minutes

Provisional Measure (MP) 1,152/2022, published on 29 December 2022, aims to change the Brazilian Transfer Pricing rules for standardization with the global Transfer Pricing system. In this way, even if at this first moment, there are still peculiarities of Brazilian legislation, it is already possible to notice the commitment of the tax authorities and the government to be in convergence with the OECD. In addition to trying to fill the gaps left by the previous legislation that regulated the Transfer Pricing rules, Law 9.430/96 and IN RFB Nº 1312/2012.

Below we highlight the main changes:

	Previously with Law 9.430/96 and IN RFB Nº1312/2012	Currently with Provisional Measure 1.152/2022
Arm's Length Principle	Previously, there was an inspiration applying the principle, but no legal positivisation	Included in article 2 – "for purposes of determining the tax calculation basis of the taxes referred to in the sole paragraph of article 1, the terms and conditions of a controlled transaction shall be established between unrelated parties in comparable transactions"
Calculation method	Depending on the method, fixed margins on profit can be 15 per cent to 40 per cent	The calculation will be based on market bases, i.e. the benchmark
Methods	Methods have been pre-established for import, export and commodity transactions	Inclusion of new methods such as: Resale Price less Profit (RRP) without fixed margins; Cost plus Profit (CML), Net Transaction Margin (NPM), Profit Share (CDM). Keeping the previously used method of Compared Independent Price (PIC)
Choice of method	The taxpayer had the freedom to choose the best method for his company, except for commodities which have specific methods	The taxpayer no has a free choice over methods, at this time, the appropriate method must be adopted
Cost Sharing Agreements	There was not a legal positivization of how the Brazilian company would contribute, many times only with the costs and not receiving benefits for them. And the legal basis was solutions of consultation of the Federal Revenue	At this moment, the legal positivization of the cost sharing contracts, will make all the parties that contributed to the development of the company receive transfers without charging a profit margin, facilitating intra-group operations
Transactions with intangibles	Difficult to understand what could be considered intangible, and without including them in the transactions	The Intangibles are identified in the MP, in a taxative manner. The calculation of the transactions with intangibles, will be based on the contributions and on the functions performed to the intangible, besides a benchmark analysis, to understand the risks that may occur in the transaction
Financial Transactions	No provision for financial operations	At that point, financial transactions will adjust and will be controlled by Transfer Pricing rules

Besides establishing the new rules, this MP will be extremely important for international taxation, redesigning agreements and principles, such as cost-sharing agreements (agreements and document keeping); new agreements to avoid double taxation; the "Arm’s Length" principle; definition of intangibles of difficult valuation; regulation of financial operations and intra-group transactions.

According to the Provisional Measure, the new rules will be optional for the calendar year 2023 and mandatory for 2024. Therefore, companies that have intercompany operations (import/export of products and services) must adapt their reports and other documentation to be prepared for the calculation update for the coming years.