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April 13, 2022

Brazil to propose new transfer pricing system to align with OECD’s transfer pricing guidelines

The new transfer pricing system would have a significant impact on taxpayers not only because more transactions would be subject to a transfer pricing analysis but also because the current formulary transfer pricing approach adopted by Brazil would be replaced by the arm’s length principle. Taxpayers may want to evaluate the impact the new system may have on their operations and monitor the development of this proposal, as well as its progress through the Brazilian Congress.

On 12 April 2022, the Brazilian Tax Authority (RFB) and Organisation for Economic Co-operation and Development (OECD) met to discuss Brazil’s proposal for a new transfer pricing (TP) system that would implement the arm’s-length principle. Full implementation of the arm’s-length principle would be an important step for Brazil as it aligns its TP system with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines).


Since 2018, the RFB and the OECD have been working together to align local TP rules with the OECD Guidelines as part of Brazil’s entrance process into the OECD.

The reasons for aligning Brazil’s TP system with the OECD’s TP rules include the following: (i) integrating Brazil into the global value chain of multinational enterprises (MNEs); (ii) avoiding double-taxation and double non-taxation scenarios; (iii) meeting Brazil’s development goals (preventing loss of revenues due to current base erosion and profit shifting (BEPS) practices); and (iv) facilitating Brazil’s entrance into the OECD.

Proposed new TP system

Tested party selection

The proposal would allow taxpayers to select either a domestic or foreign tested party as part of the TP analysis, which would align with the OECD Guidelines and the approach already applied by some other Latin American jurisdictions.

Concept of related parties

The new system would completely define related parties and include examples of related parties to provide taxpayers with tax certainty.

TP methods

The proposal would implement all OECD-recognized TP methods, including the transactional net margin method (TNMM) and the profit split method (PSM). Other methods also would be accepted for specific cases, such as valuation methods for intangibles transactions.

Selection of the TP method

The proposal would require taxpayers to select the most appropriate TP method based on the nature of each intercompany transaction. This change is significant as the current Brazilian TP rules allow taxpayers to use the most beneficial method, which results in the lowest TP adjustment.

Transactions subject to analysis

The new TP system would cover all intercompany transactions, including those not currently covered by the Brazilian TP Rules, such as royalties, and all types of financial transactions.1 It also would include a specific methodology for intangibles. This broad approach may be considered one of the most significant changes.

Comparability analysis

The proposal would establish the comparability analysis as the foundation of the new TP system and would base comparability on the relevant economic circumstances and conditions of the controlled transaction. The comparability analysis is central to a TP analysis from an OECD perspective and is not included in the current Brazilian TP rules.

TP adjustments

The proposal would allow a primary adjustment when taxpayers do not comply with the arm’s-length principle (ALP), and a secondary adjustment to address the consequence of profit shifting. To eliminate double taxation scenarios, a corresponding adjustment would be available under the mutual agreement procedures (MAP).


The proposal would define commodities based on market approaches adopted by independent parties, which could affect the current regulatory list that defines commodities. The key feature of this proposal would be the pricing date. The new system would consider the pricing date for the commodities to be the date on which the transaction was carried out, which aligns with the OECD Guidelines. This could mean departing from the current “sixth method” type of approach adopted by Brazil (Price Quotation Methods – PCI/PECEX).


The new system would include a specific definition of intangibles for TP purposes and align that definition with the OECD Guidelines, going beyond the accounting concept of intangibles. In this regard, the concept of DEMPE2 functions would have an important role within the new legislation, as it would drive profit allocation. Current Brazilian TP rules do not provide for adequate methods focused on intangibles, and expressly exclude royalties from their scope. Royalties are currently subjected in Brazil to deductibility limitations based on percentages defined by law and regulations. The royalty deductibility limitation would be revised to make it effective only as an anti-avoidance measure in conjunction with the ALP.

Intragroup services

The proposal would define intragroup services to align with OECD Guidelines. Additionally, low value-added services would be amongst the very few types of transactions that could be subject to safe harbor rules.

Cost contribution arrangements (CCAs)

The proposal would add the concept of CCAs and include comprehensive guidance on CCAs, which would define both types of CCAs--development CCAs and services CCAs. This change would be important for MNEs operating in Brazil that participate in CCAs, as they will need to align their compensation with their contribution.

Business restructurings

The new system would establish principle-based guidance for determining the appropriate compensation resulting from business restructurings. 

Financial transactions

The proposal would cover all types of financial transactions, such as debt arrangements, cash pooling, guarantees and insurance. The proposal also would include guidance on applying the ALP. This change is important, as the current Brazilian TP rules have very limited coverage of financial transactions. The new TP System would not preclude application of the interest limitation rules.

Tax certainty

To provide certainty and simplification, the proposal would implement a legal framework to make sure that safe harbor conditions are reflective of those practiced in the market. The RFB also highlighted that it may be possible to adopt safe harbors for Amount B of Pillar I. Additionally, the proposal would authorize the RFB to enter into advance pricing agreements (APAs).

TP documentation

Following the BEPS Action 13 three-tiered approach (i.e., country-by-country (CbC) report, master file and local file), the proposal would implement a similar three-tiered approach. Brazil already requires the CbC report submission as part of its domestic legislation.


The RFB and the OECD have established a way forward in adopting the new TP system. The RFB will interact with stakeholders and use their feedback to finalize the legislative package submitted to the Brazilian Congress. In the meantime, the OECD and the RFB will continue working on: (i) the development of compliance and tax administrative processes; (ii) the creation of potential safe harbors; (iii) the creation of dispute prevention and resolution processes; and (iv) the development of secondary laws for specific matters related to the new TP system.

This proposal for a new TP system represents a further step in Brazil’s entrance into the OECD and will significantly affect MNEs. The OECD and RFB have suggested implementing the new TP system by 2023 (which may be challenging with general elections being held later this year).  MNEs, however, may want to evaluate the potential effects of the new TP system on their operations. They also should monitor the development of this proposal, as well as its progress through the Brazilian Congress once it is presented.


For additional information with respect to this Alert, please contact the following:

  EY Assessoria Empresarial Ltda, São Paulo

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific



  1. Debt arrangements, cash pooling, guarantees, insurance, among others.

  2. Development, enhancement, maintenance, protection and exploitation.


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