May 12, 2023
Brazil Senate approves Provisional Measure addressing new transfer pricing rule, enforceable from 1 January 2024
The Brazilian Federal Senate has approved legislation addressing the new transfer pricing (TP framework in Brazil). Specifically, Bill of Law No. 8 of 2023, approved on 10 May 2023, stems from Provisional Measure No. 1,152 (PM 1,152/22), which was published on 29 December 2022 and addresses the new TP framework. This approval is one of the last steps in implementing a TP system in accordance with the guidelines established by the Organisation for Economic Co-operation and Development (OECD).
The new TP model aims to integrate Brazil into the global value chains and mitigate both double taxation and double nontaxation scenarios. Moreover, this new TP system will likely remove one of the main obstacles associated with tax credits recognition in the United States (i.e., foreign tax credits) arising from income tax paid and/or withheld in cross-border transactions involving Brazil.
The Federal Senate approved PM 1,152/22 after the Lower House of Congress reviewed and approved the draft legislation on 30 March 2023.
The main changes that the Lower House of Congress made to the original text include:
As the PM moved through the Federal Senate, additional amendments were proposed, but not approved, as summarized below:
Ultimately, all amendments were rejected in the Senate and the text remained identical to that approved in the Lower House of the Congress.
As the final step in implementing the new transfer pricing system in Brazil, the Bill of Law resulting from the Provisional Measure 1,152/22 should be sent for presidential sanction. Afterward, it should be published in the Federal Official Gazette (Diário Oficial da União - DOU).
Brazilian taxpayers may opt to adopt the new TP system aligned with the OECD guidelines this year. To do so, taxpayers must inform the Brazilian Tax Authorities (RFB)1 between 1 September and 30 September 2023. The new TP system will be mandatory for all taxpayers as of 1 January 2024.
The conversion of PM 1152/22 into law is a milestone for Brazil and represents a new chapter for the country's international operations. It is expected that the TP framework will draw new foreign direct investments and also integrate Brazil into global value chains. In this sense, it is essential that multinational groups adequately prepare for this change, including by mapping potential impacts on their business in Brazil and abroad (e.g., early adoption, impacts on income taxes and customs valuation, foreign tax credits in the United States, etc.).
Summary of the main technical aspects of the new TP model
Among the main points brought by PM 1,152/22, we highlight the following:
For additional information with respect to this Alert, please contact the following:
EY Assessoria Empresarial Ltda, São Paulo
Ernst & Young LLP (United States), Latin American Business Center, New York
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
1 Through the digital portal provided by the RFB: Portal do Centro Virtual de Atendimento (Portal e-CAC).
2 Comparable uncontrolled price (PIC - Preço independente comparável)
3 Resale price method (PRL — Preco de revenda menos lucro)
4 Cost plus method (MCL — Custo mais lucro)
5 Transactional net margin method (MLT — Margem líquida da transação)
6 Profit split method (MDL — Divisão de lucro)