The Brazilian government has enacted new transfer pricing (PT) legislation based on the arm's length principle, in accordance with the Organization for Economic Cooperation and Development (OECD) guidelines. The move was prompted by recent changes to the US tax code, which no longer recognizes taxes paid in Brazil as a credit due to deviations from the arm's length principle in Brazil's PT system.
The new legislation, Provisional Measure 1152/2022, was published in the Official Gazette on December 29, 2022 and will enter into force on January 1, 2024. Its application is optional for the calendar year 2023, but mandatory from 2024 The legislation includes the following provisions
- A definition of the arm's length principle (ALP) and definitions of key concepts such as controlled transactions, related parties and comparable transactions.
- Rules for the application of the arm's length principle, including guidance on the structure of controlled operations and comparability analysis.
- OECD-based transfer pricing methods, including comparable free pricing, cost plus, resale price, transactional net margin, profit split, and other methods that produce consistent results with those of comparable transactions between unrelated parties. The legislation also provides guidance on the combination of these methods to ensure their correct application.
- Coverage of raw materials and ancillary obligations, analyzed parties, intangible and intangible assets difficult to value, intra-group services, cost sharing, business restructuring, transactions involving debt, intra-group guarantees, centralized treasury management and insurance.
- Provisions on documentation and sanctions, a specific consultation process for the TP and a mutual agreement procedure for the purposes of the TP.
In addition, other articles of Brazilian law will be repealed as of January 1, 2024. Provisional measures are issued by the President of Brazil and are valid for a period of 60 days, which can be extended for another 60 days. After this term, they lose their effect unless they are approved and converted into law by the National Congress.