Brazil’s new transfer pricing law will impact those who conduct business in Brazil in 2024

Taxpayers who want to apply the new rules retroactively for 2023 tax need to elect to do so by December 31, 2023.

Companies that do business in Brazil and are part of a multinational group should review and assess if their current Brazil transfer pricing is in accordance with the new transfer pricing regulation and meets the new documentation requirements.

Brazil’s Law No. 14,596, signed on June 14, 2023, enacts significant changes to the Brazilian transfer pricing system. These changes essentially represent a shift from Brazil’s historically unique transfer pricing system, which relied on standard fixed gross margins or markups, to an arm’s-length standard largely consistent with the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines. The OECD guidelines, in turn, are consistent with the U.S. transfer pricing regulations.

• Brazil’s law establishes new transfer pricing methods and documentation requirements, as well as considerable changes to the treatment of intangible assets, financial transactions (such as intercompany loans), and business restructuring.
• Companies must apply the new transfer pricing rules to their Brazilian intercompany transactions for tax periods beginning on or after January 1, 2024. The bill allows companies to elect application of the new rules retroactively for the 2023 tax period – taxpayers will need to make the irrevocable election to do so by December 31, 2023.

Brazil’s Federal Revenue (i.e., Receita Federal do Brasil) released Normative Instruction RFB No. 2161 on September 28, 2023, which serves to govern the new transfer pricing system. In regard to documentation requirements: 

• Companies with intercompany transactions exceeding BRL 500 million must provide a complete Master file and Local file.
• Companies with BRL 15 million ~ BRL 500 intercompany transactions must provide a Local file “light” which contains very basic information on transfer prices.
• Companies with intercompany transactions below BRL 15 million are exempt from providing transfer pricing documentation but are required to adhere to the arm’s length principle.

Now is the time for impacted taxpayers to review and assess if their current Brazil transfer pricing is in accordance with the new transfer pricing regulation and meets the new documentation requirements.

Contact me or another member of Kaufman Rossin’s international tax team to learn more about transfer pricing requirements and how your company may be affected.