On today's date (06/15/2023), Law n^o . 14.596, of June 14, 2023, which changes the rules on transfer pricing in Brazil, was published in the Diário Oficial.

The new law aligns Brazilian legislation with the best international practices, making the country more attractive as a production and investment destination.

RFB Normative Instruction no. 2,132, of February 17, 2023, had already regulated the option for anticipating the effects of Law no.^o 14,596 for 2023. The anticipation may be made in September 2023, by opening a digital process through the e-CAC Portal.

• What is transfer pricing legislation?

These are rules applicable to taxpayers that carry out commercial and financial transactions with bound parties abroad, such as their parent company or companies in the same economic group, in addition to transactions with companies located in tax havens or that hold exclusivity in the transactions, even if not bound.

The aim is to prevent one of these countries from missing out on the tax due and to ensure that profits arising from commercial and financial transactions between members of a multinational group are allocated in a way that reflects the value of the contribution of each of the parties involved.

• New Regulatory Framework

Law n^o . 14.596

Normative Instruction RFB No. 2.132/23

• When do the new rules take effect?

In calendar year 2024, with optional anticipation to calendar year 2023.

RFB Normative Instruction no. 2,132/23 establishes the procedure for early adhesion for the year 2023, which will take place in September, via e-CAC.

• What has changed in the legislation?

A completely new methodology was adopted for transfer pricing that aims to be aligned with the guidelines established in the OECD's Transfer Pricing Guidelines, with emphasis on the following changes:

• Acceptance of the arm's length principle;
• The taxpayer must choose one of the following methods for transfer pricing: (i) Comparable Independent Price (PIC); (ii) Resale Price Less Profit (PRL); (iii) Cost Plus Profit (MCL); (iv) Net Transaction Margin (MLT); (v) Profit Split (CDM);(vi) Other arm's length method;
• The adjustments may be spontaneous (directly to the IRPJ and CSLL tax bases), compensatory (made by the parties to the controlled transaction until the end of the calendar year in which the transaction was carried out), primary (made by the Brazilian IRS Tax Auditor) and secondary (resulting from the spontaneous and primary adjustments); and
• There are specific rules for determining participants/compensations in cost-sharing agreements.

• What transactions are subject to transfer pricing adjustments?

Commercial or financial transactions carried out between companies of the same economic Group (related parties), headquartered in different tax jurisdictions; and

Commercial or financial transactions carried out between a Brazilian company and a company headquartered in a tax haven or a country with favored taxation, as determined by Brazilian legislation.

• What are the penalties for companies that do not make the ajustments?

Application of   fines ranging from R$20,000.00 to R$5,000,000.00.

• Which companies should anticipate, to 2023, the transfer pricing under the new rules?

US multinationals operating in Brazil may have an advantage by adopting the new rules as early as 2023, as it may be a way for companies to regain credit in the United States for the tax paid in Brazil. There is no certainty, however, that the change will guarantee the taking of credits.

The early option may also be interesting for companies with high royalty expenses or that already use the OECD standard in other countries.