On December 29, 2022, the Brazilian government issued Provisional Measure No. 1,152 to align Brazil’s transfer pricing system with the OECD Guidelines and principles.
The main change is the introduction of the arm’s length principle, which was absent from the current transfer pricing regulations. Additionally, the reform includes new transfer pricing methods, documentation requirements, and significant changes in the treatment of intangible assets, financial transactions, and business restructurings.
Below is a summary of the key changes proposed by the new regulation:
- Introduction of the arm’s length principle (replacing the fixed margin regime).
- Specific rules for intra-group services and assets, cost-sharing agreements, business restructurings, and guarantee provisions.
- All transactions with parties located in jurisdictions with an income tax rate lower than 17% will be treated as related-party transactions.
- Interest deduction will be subject to the “necessity” requirement and thin capitalization rules.
- New rules on the deductibility of royalties and certain services.
- Possibility of obtaining specific transfer pricing rulings from the Brazilian Federal Revenue Service for up to four years.
- Penalties of up to BRL 5 million (approximately €1 million) for failure to provide the required documentation on related-party transactions.
If the Measure is approved by Congress, the new rules will come into effect on January 1, 2024. However, taxpayers may choose to adopt these new principles starting January 1, 2023.
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