On December 29th, 2022, Provisional Measure No. 1,152/2022 (“MP”) was published, aiming to align the Brazilian transfer pricing rules to the guidelines provided by the Organization for Economic Co-operation and Development (“OECD”).
In this sense, we highlight below the main changes and the new provisions which will be mandatory from 2024 onwards and can already be adopted from January 2023.
Unlike the previous legislation in force, which was based on fixed margins and safe harbors, the new legislation adopts the Arm’s Length Principle as its main guideline. Therefore, the basis for calculating taxes must be determined considering existing conditions between unrelated parties and in comparable transactions.
The MP presents three new methods to the Brazilian law (already known in international law), namely: Net Margin and Profit Sharing (“MLT” and “MDL”);Compared Independent Prices (“PIC”);Resale Price and Cost Plus Profit (“RPL” and “MCL”).
An important issue presented in the MP is the concept of related parties, which is broadly defined as: “Parties are considered to be related when at least one of them is subject to influence, directly or indirectly exercised by another party, which may lead to establishing terms and conditions in their transactions that differ from those that would be established between unrelated parties in comparable transactions. “
Finally, another relevant change worth mentioning is the express provision on the treatment to be used in operations involving intangible assets, intangible assets that are difficult to value, intra-group services, cost-sharing contracts, business restructuring and financial operations.
As this is an extensive and complex new legislation, a Normative Instruction is expected to discipline the new transfer pricing rules. We will monitor and report new changes.
For further information, please do not hesitate to contact us.
