On 28 August 2024, the Brazilian Federal Revenue Service (RFB) published a public consultation to collect comments and suggestions on the proposed regulations to implement the transfer pricing legislation (Law No. 14.596/23) related to (1) transactions involving intragroup services and (2) APAs.

Taxpayers may submit comments by email until 30 September 2024 and may request meetings with the RFB to discuss the matter.

Intragroup services

Under the proposed regulations, the RFB would modify the intragroup services provisions of Normative Instruction 2,161, from September 2023 (IN 2,161/23).

Specifically, the proposed regulations would clarify the rules for analyzing transactions involving services that are focused on intermediation of tangible and intangible goods. The proposed regulations would not allow taxpayers to claim more than one deduction for the same service (embedded fees), even when the values of the services are integrated into operations involving tangible or intangible goods. They also would include a provision on the concept of incidental benefits (including benefits arising from a partner's activity), which would not be included in a taxpayer's compensation. Additionally, the proposed regulations would include a test to determine the economic and commercial benefits of the services provided.

For intermediated services, the proposed regulations would clarify the determination of charging at cost (without adding a profit margin) for services provided by third parties. According to the proposed text, the costs related to the performance of services by a related party could be remunerated with a profit margin, but the portion of the services provided by third parties and allocable to Brazil could not be marked up.

Additionally, for services that include the use of tangible goods, the RFB proposes that Brazilian withholding tax (IRRF, for the Brazilian acronym) would be levied only on the service portion (and not on the part of the fees related to the intermediated goods/tangible goods).

APAs

The RFB proposes a new normative instruction that would detail the entire APA process in Brazil. As suggested by the RFB's own text, the APA process would be a voluntary process aimed at offering predictability and legal certainty to taxpayers. The text of the proposed normative instruction would clarify that the APA process would allow a cooperative process between the RFB and the taxpayer to prevent disputes over the methodology and economic analysis of controlled operations conducted by Brazilian companies.

While the RFB had expressed in other publications and public events that it preferred bilateral APAs, the proposed regulations deal only with unilateral APAs. Unilateral APAs could be an issue, to the extent double taxation could occur, given there would not be an agreement between Brazil and the authorities of other jurisdictions involved.

According to the proposed regulations, the RFB would be authorized to determine the maximum number of APAs to be accepted for analysis per year, due to the limitation of resources and specialized personnel. The proposed regulations also would only make the APA process available to companies that have already been participants in the cooperative tax compliance program (CONFIA) for at least six months.

The RFB would present its conclusions on the APA and the taxpayer would have the opportunity to discuss and propose adjustments. If the RFB and taxpayer do not agree, the RFB would then prepare a document detailing the reasons the agreement was unfeasible. The taxpayer would not have the right to appeal or request a reconsideration of the RFB's decisions.

The APA would be valid for up to four years and could be extended for another two years. The proposed regulations would allow the APA to be applied to previous assessment periods, if the facts apply and the RFB authorizes it.

The proposed regulations would not include information on the protection against a tax audit or the application of penalties during the APA request analysis process.

Implications

Stakeholders should submit comments to share their views and participate in the drafting of the transfer pricing rules in Brazil.

Taxpayers also should consider the proposed regulations when conducting their transactions, whether current or future. Although the proposed regulations are subject to comments and changes, they are a potential indicator of what the RFB is focused on with respect to the provision of services between related parties and the APA process.