Brazil’s Federal Revenue Department Seeks Public Comments on New Transfer Pricing Regulations 6 jul 2023

Brazil’s Federal Revenue Department Seeks Public Comments on New Transfer Pricing Regulations

On July 3rd, 2023, the Federal Revenue Service of Brazil (RFB) made available for public consultation a draft Normative Instruction that will regulate Law 14,596/2023, which formally incorporated the arm’s length principle into Brazilian tax system.

The new Brazilian Transfer Pricing regime must be applied as of 2024, but there is an option of early adoption for 2023. The draft Normative Instruction includes a welcome postponement of the period for formalization of the request for early adoption to November 1st – 30, 2023 (in Law No. 14,596/23, it was scheduled for September 1st – 30, 2023).

In addition, the draft Normative Instruction includes provisions focused on:

  1. Topics addressed in the general part of Law No. 14,596, of 2023, including:
    1. Definition of related parties.
    2. The interpretative role of the OECD Transfer Pricing Guidelines.
    3. Delineation of a controlled transaction.
    4. Comparability analysis.
    5. Selection of the transfer pricing method.
    6. Selection of the financial indicator.
    7. Selection of the tested party.
    8. The comparable range.
    9. Transfer pricing adjustments.

2. Administrative issues related to transfer pricing, particularly documentation (Master File and Local File).

3. Safe harbour for low-value-adding intragroup service transactions (the remuneration for these services will have a gross profit margin of at least 5% for companies based in Brazil and a maximum of 5% for related parties abroad, calculated on the total direct and indirect costs.)

In the coming months, the Normative Instruction will include rules focused on specific transactions, such as those involving commodities, intangibles, intra-group services, cost-sharing agreements, business restructuring, financial operations, the APA process, and will potentially introduce safe harbours for distributors.

Taxpayers and interested parties are encouraged to contribute to the shaping of the final regulations by submitting public comments between July 3rd and 25th, 2023 to, preferably in pdf format. Participants must expressly indicate whether they agree with the publication of the content of their submission and, if they wish, request that their identification or personal data be removed in case of publication of submissions.