On May 10, 2023, the Brazilian Senate approved Provisional Measure No. 1,152/2022, which amends the transfer pricing legislation in Brazil and introduces the OECD transfer pricing model.

The text approved by the Senate was exactly the same as the one approved in the Chamber of Deputies and will now proceed to the President's sanction/signature, with a high probability of being approved.

The adoption of the new model will be optional for the calendar year 2023 (with an irrevocable option until September 30, 2023) and mandatory for 2024.

The new model brings substantial changes to the transfer pricing legislation and applies to all companies.

The regulation of the law will be swiftly carried out by the Brazilian Federal Revenue and will be complex, incorporating technical and operational details, as well as several safe harbors (rules that allow for non-application of transfer pricing rules).

It is important for each company to assess its business and revisit transfer pricing policies to identify risks and opportunities in anticipating the application of the effects of the new transfer pricing rules.

In addition to the more obvious aspects involving method selection, impact measurement on adjustments, and functional analysis, we emphasize particularly important items for the option of anticipating the effects of the law:

  • Changes in rules regarding the deductibility of royalties, with room for tax planning in repatriating funds.
  • Assessment of the deductibility of intercompany loans – qualification as a debt or equity transaction (100% non-deductible); testing the potential impact on interest deduction.
  • Attention to operations involving intangibles and local and global corporate reorganizations (involving the exchange of Brazilian assets, for example).
  • Restructuring of global businesses (with attention to the effects of such restructurings on Brazilian functional analysis).
  • Need to review procedures, processes, and intercompany contracts for compliance with the new rules.
  • Inclusion of Article 10 in Normative Instruction No. 2,132/2023 partially blocking the application of TP adjustments for increases in other taxes (special attention to concerns regarding customs value).
  • Compensatory adjustment (made on the transaction value) does not require prior authorization (or request) from the Federal Revenue Service (RFB).

Regarding the option to anticipate the effects of the law, we remind you of the rules in Normative Instruction No. 2,132/2023:

i. The option must be made between September 1, 2023, and September 30, 2023.
ii. The request is made by protocol in the e-Cac Portal of the Single Annex of IN 2,132/2023.
iii. In cases of starting activities between September and December, the option is made in the first month of activity (including in cases of spin-offs).
iv. Legal entities dissolved between January and August must make the option in the month of dissolution.
v. The option is irrevocable and entails the full adoption of the transfer pricing rules of MP 1,152/22.

Bruno Santo – Partner
Pedro H. Buffolo Jr. - Partner
Fernanda Sampaio – Head
Alice Oliveira - Associate