June 16, 2023
Brazil transfer pricing law enforceable beginning 1 January 2024
A new law, published in the Brazilian Federal Official Gazette (Diário Oficial da União - DOU) on 15 June 2023, establishes a transfer pricing (TP) framework in Brazil that is aligned with the guidelines provided by the Organisation for Economic Co-operation and Development (OECD).
The new TP model in Law No. 14,596 of 14 June 2023 (Law 14,596/23) 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-credit recognition in the United States (i.e., foreign tax credits) arising from income tax paid and/or withheld in cross-border transactions involving Brazil.
As part of the implementation of the new Brazilian TP framework, Provisional Measure No. 1,552/22 (PM 1,552/22) was published on 28 December 2022. PM 1,552/22 was approved both by the Lower House of Congress and the Federal Senate and then sent to be sanctioned by the Brazilian President on 25 May 2023.
On 14 June 2023, PM 1,152/22 was converted into Law 14,596/23 when signed by the Brazilian President without any relevant change in the text approved by the Brazilian Congress.
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.
It is expected that the Brazilian Revenue Authority (RFB) will hold a public consultation in the coming weeks, launching a discussion on the new TP regime. Based on the public consultation, the RFB will publish a set of Normative Instructions that will provide guidance and define the requirements to be followed. The public consultation can be seen as an opportunity for Brazilian taxpayers to effectively participate in the process of creating a new TP environment.
The publication of Law 14,596/23 is a milestone for Brazil and represents a new chapter in the country's international operations. It is expected that the TP framework will draw new foreign direct investments and help integrate Brazil into global value chains. This change goes beyond the tax system, as it affects the operating models of multinationals with a presence in Brazil.
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
Key aspects of Law 14/596/23 include:
For additional information with respect to this Alert, please contact the following:
EY Assessoria Empresarial Ltda, São Paulo
Ernst & Young LLP (United States), International Tax and Transactions Services, Transfer Pricing
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)