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The proposed TP legislation in Brazil clarifies intangibles

According to a source familiar with the situation, Brazil's draft transfer pricing legislation will place a significant focus on intangible assets and loss-operating businesses.

The timeline of the draft bill, which was drafted by the current administration of Jair Bolsonaro, who recently lost the presidential race, is now uncertain.

Luiz Inácio Lula da Silva (often known as Lula), the country's new president, has yet to announce any intentions regarding the TP regime. Before Lula takes office in January 2023, it appears doubtful that Bolsonaro will release any draft legislation.

The source, a tax director who has seen a preview of the impending legislation, which aspires to be in line with the OECD's TP principles, stated that "they shared a portion of the wording of the upcoming law - the wording relates to the definition of intangibles."

"My first impression is that it brings a lot of clarity that we don’t have today," he continued.

The law was seen by the director before Brazil's October 30 presidential election. Tax directors were worried that the change in presidency may stall or even prevent the adoption of the proposed law, as was later revealed.

Brazilian TP regulations do not adhere to the arm's-length concept but rather rely on computation techniques using predefined margins.

Additionally, they provide no advice regarding intangible assets, whereas the new law defines these assets clearly. The term is comparable to the US law's definition of global intangible low-taxed income, which levies a minimum tax on revenue earned by overseas corporations that are under a foreign government's control.

The tax director said, "It’s defining intangible by exclusion – assets that cannot be defined as tangible.  ."

The insider also said it is "worrisome" because Brazil currently has no laws governing intangibles.

According to the source, the new TP regime in Brazil might help ensure that loss-operating businesses pay their fair amount of taxes, which has been an issue in the past.

The tax director declared that "they will no longer be able to operate at a loss."

Brazil has consistently expressed a desire to join the OECD, and the documents created by the tax authorities confirm this desire for change.

What the future holds for the draft bill is still unclear, though.

"It’s going to depend on the agenda of the next government – it’s such a sensitive topic. The TP changes might bring some increasing tax revenue. The president [Lula] will be able to push the reform forward, although he said the OECD membership wasn’t his priority," stated the tax director.

As Lula assumes government, the following year will be crucial for the country's trajectory towards OECD TP regulations.


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