Brazil’s New Transfer Pricing Rules

Brazil recently revamped its transfer pricing rules to harmonize its tax system with international standards. The updated rules aim to provide more transparency and predictability for multinational companies operating in Brazil.

The decision to reform the existing transfer pricing rules stems from Brazil’s commitment to aligning its rules with the guidelines of the Organization for Economic Co-operation and Development (OECD). Adherence to these guidelines is expected to promote international trade, reduce tax disputes and increase compliance.

The new transfer pricing rules focus on three fundamental elements:

The first is the adoption of the arm’s length principle. Companies will need to show their intercompany pricing for goods and services would be comparable to prices paid by unrelated parties in similar circumstances.

The second pertains to standardized pricing methods. Companies can now determine their transfer prices using one of five standardized pricing methods widely used by multinationals.

The third element involves advance pricing agreements. Companies can obtain pre-approval from the taxing authority on their transfer pricing methods, thereby mitigating potential disputes.

In addition to these changes, Brazil’s lower house of Congress has passed legislation to further support transfer pricing reform. This legislative initiative aims to strengthen the regulatory framework and provide clearer guidance for companies navigating the new rules.

The new transfer pricing rules are optional for 2023 but will become mandatory in 2024. Hence, it’s essential to familiarize yourself with the rules and ensure you’re ready to comply. It’s time to get your multinational up to speed on these new developments.