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Brazil Implements Overhaul of Transfer Pricing Rules, Embracing OECD Standards

Brazil has recently completed its legislative process to adopt transfer pricing rules based on the Organization for Economic Cooperation and Development (OECD) guidelines, marking a significant change in the country's transfer pricing system.

Brazil Implements Overhaul of Transfer Pricing Rules, Embracing OECD Standards

On June 14, President Luiz Inácio Lula da Silva signed Law No.14,596, which approves substantial modifications to Brazil's transfer pricing regime.

The enactment of this law fulfills Brazil's legal obligation to implement provisional transfer pricing reform measures, which were previously approved by the Senate on May 10. The process of reforming transfer pricing standards in Brazil has been a lengthy one, with discussions dating back to 2018 under the previous administration of Jair Bolsonaro, who aimed to simplify the tax system and increase revenue.

However, it was not until 2022 that a transfer pricing reform bill, based on OECD principles, was introduced in parliament. The new transfer pricing measures are scheduled to take effect from January 1, 2024. With these changes, Brazil will move away from its current formulary apportionment approach, which relied on fixed margins and safe harbor rules.

The previous transfer pricing practice had faced criticism for enabling mispricing activities and deviating from international standards, resulting in a loss of tax revenue for the Federal Revenue of Brazil. The revised framework will replace this practice with updated guidelines and documentation requirements that align with the arm's-length principle (ALP). The ALP ensures that inter-company transactions are based on market rates, promoting greater accuracy in pricing and potentially enabling the Brazilian government to collect more tax revenue from such transactions.

In addition to updating transfer pricing rules, Brazil's comprehensive reform will also bring significant changes to the treatment of digital assets, financial transactions, and business restructuring practices. The government is encouraging companies to adopt the new transfer pricing practices as soon as possible, even before the official implementation date of 2024.

By embracing OECD-based transfer pricing standards, Brazil becomes the fifth country in Latin America to align its transfer pricing rules with international guidelines. This move reflects Brazil's commitment to improving its tax system and aligning it with global best practices, enhancing transparency and fairness in inter-company transactions.

The implementation of these revised transfer pricing rules marks a milestone in Brazil's tax landscape, paving the way for a more robust and internationally aligned approach to transfer pricing regulation.



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