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May 12, 2023

Brazil Senate approves Provisional Measure addressing new transfer pricing rule, enforceable from 1 January 2024

  • The Brazilian Federal Senate has approved transfer pricing legislation.
  • This represents one of the last steps in implementing a transfer pricing system in accordance with the guidelines established by the Organisation for Economic Co-operation and Development, and multinational groups must adequately prepare.
  • This Tax Alert highlights the final legislation and changes made from an earlier draft.

General context

The Brazilian Federal Senate has approved legislation addressing the new transfer pricing (TP framework in Brazil). Specifically, Bill of Law No. 8 of 2023, approved on 10 May 2023, stems from Provisional Measure No. 1,152 (PM 1,152/22), which was published on 29 December 2022 and addresses the new TP framework. This approval is one of the last steps in implementing a TP system in accordance with the guidelines established by the Organisation for Economic Co-operation and Development (OECD).

The new TP model aims to integrate Brazil into the global value chains and mitigate both double taxation and double nontaxation scenarios. Moreover, this new TP system will likely remove one of the main obstacles associated with tax credits recognition in the United States (i.e., foreign tax credits) arising from income tax paid and/or withheld in cross-border transactions involving Brazil.

Approval process

The Federal Senate approved PM 1,152/22 after the Lower House of Congress reviewed and approved the draft legislation on 30 March 2023.

The main changes that the Lower House of Congress made to the original text include:

  • Modification of art. 13: Clarifications for commodities transactions included:
    1. Allowing the use of internal comparables, when available
    2. Allowing the use of another method, besides the comparable uncontrolled price (PIC-Preço Independente Comparável) method, when it is considered more appropriate
    3. Emphasizing the importance of avoiding comparability adjustments that could affect the reliability of the PIC method, resulting in the selection of a different methodology
    4. Emphasizing that use of public prices should be considered for TP analysis as long as they were used by independent parties under comparable transactions
    5. Emphasizing that, under extraordinary conditions, the use of public prices should not be considered appropriate if the result would be inconsistent with the arm's-length principle
  • Modification of art. 17: Removed the secondary adjustment concept
  • Removal of art. 19: Removed the secondary adjustment specifications
  • Modification of art. 45: Removed the deductibility limitation for IRPJ (Imposto de Renda sobre Pessoa Jurídica (corporate income tax)) and CSLL (Contribuição Social sobre o Lucro Líquido (Social Contribution on Net Profits)) calculation basis for amounts paid, credited, delivered, used or remitted as royalties and technical, scientific, administrative or similar assistance to entities resident or domiciled in a jurisdiction or dependency with favored taxation or a privileged fiscal regime

As the PM moved through the Federal Senate, additional amendments were proposed, but not approved, as summarized below:

  • Amendment 108 aimed to postpone from 2024 to 2025 the entry into force of the new TP system
  • Amendment 109 proposed to modify Section 6 of Art. 13 to ensure that quoted prices set by government agencies could be considered an appropriate reference for determining commodities prices when applying the PIC method

Ultimately, all amendments were rejected in the Senate and the text remained identical to that approved in the Lower House of the Congress.

Next steps

As the final step in implementing the new transfer pricing system in Brazil, the Bill of Law resulting from the Provisional Measure 1,152/22 should be sent for presidential sanction. Afterward, it should be published in the Federal Official Gazette (Diário Oficial da União - DOU).

Brazilian taxpayers may opt to adopt the new TP system aligned with the OECD guidelines this year. To do so, taxpayers must inform the Brazilian Tax Authorities (RFB)1 between 1 September and 30 September 2023. The new TP system will be mandatory for all taxpayers as of 1 January 2024.

The conversion of PM 1152/22 into law is a milestone for Brazil and represents a new chapter for the country's international operations. It is expected that the TP framework will draw new foreign direct investments and also integrate Brazil into global value chains. In this sense, it is essential that multinational groups adequately prepare for this change, including by mapping potential impacts on their business in Brazil and abroad (e.g., early adoption, impacts on income taxes and customs valuation, foreign tax credits in the United States, etc.).

Summary of the main technical aspects of the new TP model

Among the main points brought by PM 1,152/22, we highlight the following:

  • Effective as of 1 January 2024; may be early adopted as of 1 January 2023
  • Introduces the arm's-length principle and broadens the related-parties concept
  • Applies the new TP system to all cross-border intercompany transactions (i.e., intangibles, cost-contribution agreements, and business restructuring)
  • Implements all TP methods according to the OECD standard (PIC,2 PRL,3 MCL,4 MLT,5 MDL6) and best-method rule for intercompany transaction analysis
  • Introduces functional (functions, assets and risks) and economic analysis for applying the new TP documentation rules
  • Applies the comparable uncontrolled price (CUP) method as the most appropriate method when reliable comparables are available for cross-border commodities transactions; however, taxpayers may apply other methods based on the appropriate facts and circumstances
  • Selects the tested party based on the most reliable data and best-method rule
  • Includes all cross-border financial transactions, such as intercompany loans, guarantees, centralized treasury functions and insurance transactions
  • Eliminates the royalty deductibility limitation currently in force in the Brazilian tax framework and including royalty transactions under the scope of the new TP system
  • Introduces a comparable range (interquartile or complete) considering profit-level indicators
  • Introduces spontaneous, compensatory and primary adjustment
  • Introduces simplification measures and tax certainty instruments (mutual agreement procedures and advance pricing agreements)


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

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor



1 Through the digital portal provided by the RFB: Portal do Centro Virtual de Atendimento (Portal e-CAC).

2 Comparable uncontrolled price (PIC - Preço independente comparável)

3 Resale price method (PRL — Preco de revenda menos lucro)

4 Cost plus method (MCL — Custo mais lucro)

5 Transactional net margin method (MLT — Margem líquida da transação)

6 Profit split method (MDL — Divisão de lucro)


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