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Timeline: The Long Road to TP Reform in Brazil

The Brazilian government may be on the verge of aligning the country's unique system with OECD standards, but this is a long-awaited TP change with doubtful results.

Transfer pricing in Brazil has always been a different game than it is everywhere in the globe, but this may be changing.

Brazil's TP guidelines will be decided by lawmakers in the coming months. The key question is whether the country should reinstate the arm's-length principle (ALP) in order to meet OECD TP criteria.

This could assist Brazil in gaining OECD membership, but President Luiz Inácio Lula da Silva may have other plans. Lula may be less eager than his predecessors for Brazil to join the OECD. Many tax specialists are concerned that the Lula administration will be slow to implement international tax reform.

However, the administration may find it difficult to resist the promise of new laws producing more tax income. Without changing headline rates, TP reform is one option to rebalance the tax system and potentially increase revenue.


The lengthy path to Brazilian TP reform began during the presidential campaign of 2018. Running on the Social Liberal Party (PSL) banner, populist Jair Bolsonaro defeated establishment contenders to win the election.

The election of Bolsonaro has reintroduced tax reform on the Brazilian political agenda. His team featured Brazilian Minister of Economics Paul Guedes, a Chicago School economist who advocated for a unified VAT system and corporate tax reduction.

Many observers interpreted Guedes' appointment as a foreshadowing of things to come. However, during the next four years, the administration would meet hurdle after obstacle in Congress.


President Bolsonaro was elected on a platform of overhauling the corporate tax code, including Brazil's TP laws, in January 2019. He promised to cut the overall corporation tax rate from 34% to 25%.

The Bolsonaro government had a long list of economic reforms in the works, including shrinking the public sector and revamping the pension system. Tax reform was lower on the priority list, but it was an important component of the agenda for the first year of the new government.

However, the case for Brazilian corporate tax reform ran into severe roadblocks. The president clashed with senior PSL MPs about plans to appoint his son as Brazil's ambassador to the United States.

Bolsonaro eventually had to break away from the PSL and reign as an independent. This infighting was a major setback for Brazil's plan to restructure corporate taxation. Many MPs were outraged by the cutbacks to pensions, let alone the business tax.


The Bolsonaro administration felt that the window of opportunity for revising tax legislation was closing by January 2020. Guedes told the administration in early March that it had only 15 weeks to change the tax structure. But then tragedy happened.

Brazil, like the rest of the world, was struck by the COVID-19 pandemic in spring 2020, but President Bolsonaro adopted a different strategy, attempting to prevent a nationwide lockdown. Many state and local governments have chosen to implement their own programmes rather than rely on the federal government.

Meanwhile, the Brazilian government has been forced to postpone its plans for a simpler, less complex corporate tax system with OECD-style TP regulations. These objectives were postponed, but the work proceeded in the background.

The Bolsonaro government and its congressional backers did not propose the contours of a tax reform proposal until July 2020, beginning with federal, state, and municipal tax rules. This was only the first round of talks, and Congress was far from unanimous.

The president's next step would be to handle corporation tax and TP, but he was embroiled in controversy over his anti-lockdown beliefs and lacked a strong coalition in Congress.


By 2021, it appeared like President Bolsonaro would fail to keep his promise to lower corporate taxes and align Brazil with OECD standards. The National Congress was remained deadlocked over tax reform.

Due to the stalemate on reform, one corporation tax proposal was given to the Senate in September 2020, but it remained unchanged by June 2021. Nonetheless, Bolsonaro was not going to abandon the initiative.

Many firms supported TP reform in order to achieve more alignment with worldwide standards and, as a result, promote foreign investment. The Brazilian formulary system was extremely odd.

Meanwhile, the OECD was abandoning the ALP in favour of restricted formulary apportionment in its two-pillar digital economy proposal. Brazil seems to be an international anomaly in either case.


As 2022 began, President Bolsonaro was undoubtedly preoccupied with his re-election campaign. His administration was committed to enacting substantial reforms to TP legislation.

Many tax directors in Brazil were afraid that the ALP's reintroduction would add to the complexity and compliance burden in an already litigious jurisdiction. Many tax specialists are still concerned about shaking up the TP system.

In the October 2022 Brazilian presidential election, Bolsonaro was defeated by former President Lula in a contentious campaign. It appeared that the divisive president would depart office without enacting his long-promised corporate tax overhaul.

Nonetheless, the Brazilian government had enabled important sections of the TP reform plan to be submitted to tax specialists by December. Even after the presentation, however, tax specialists in Brazil remained divided on the TP overhaul.

Regardless, Bolsonaro pushed through the TP reform measure, issuing Provisional Measure No.1,152/2022 on December 29. This was an attempt to assure that the new TP regulations would take effect on January 1, 2023, if Congress approved the reform.


Although President Lula inherited the TP reform package, it is unknown whether he will approve the legislation. He has his own tax reform programme, which includes a proposal to reform indirect taxes. He may choose to resist TP reform in favour of his own tax measures.

On Thursday, February 2, the National Congress convened for the first time in 2023, with 60 days set aside to discuss the interim motion on TP. If Congress is unable to reach a conclusion within 60 days, lawmakers may extend the deadline by another 60 days, but no more.

If passed, the TP change will be retroactively effective on January 1, 2023, with the regulations being mandatory on January 1, 2024. Even if the guidelines are accepted quickly, the Brazilian Federal Revenue will have to write regulations to implement the TP criteria.

Taxpayers can either comply with the new guidelines voluntarily or wait and see what comes out of the next few months of debate. This might be the end of TP reform in Brazil, or it could be the beginning of a bright future.



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