The formal introduction of the international transfer pricing concept into Brazilian legislation took place in 1996, while the first rules were introduced in 1997, through Normative Instruction nr. 38/97. Since then, the country has worked toward stipulating rules and procedures aiming to regulate transfer pricing (hereinafter: TP). As a result, TP’s importance in the fiscal policies managed by the Federal Revenue increased and so did TP audits practice throughout the country.
Until 2024, the transfer pricing rules in Brazil were governed by Law nr. 9430/1996, and Normative Instruction RFB 1,312/2012, which did not explicitly follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (The OECD TP guidelines). However, in 2023 a new law has been introduced – Law No. 14,596/2023, effective as of January 2024, which aims to align Brazil’s transfer pricing rules with international standards, particularly the OECD guidelines.
Arm’s Length Principle
In Brazil, the Arm’s Length Principle is the practice of determining the selling prices of transactions between related companies depending on what an independent third party would assess on a similar basis. This prevents price manipulations so that tax benefits can be taken advantage of. Brazilian tax laws emphasize that prices should reflect market conditions, avoiding practices like underpricing or overpricing. The Arm’s Length Principle is applied for the purposes of determining the validity of intercompany transactions, and it aims to assign related and independent transactions the same significance in the tax context.
Related Party Definition
Brazilian transfer pricing rules define “related parties” as certain non-resident individuals or companies with close ties to a Brazilian company. These include parent companies, subsidiaries, and branches abroad; entities sharing common control or ownership of at least 10%; those with joint business ventures or co-ownership; and relatives of directors up to the third degree. It also includes exclusive agents or distributors and companies where the Brazilian entity has a significant influence as per Corporate Law.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Brazil are:
- Comparable Uncontrolled Price Method (hereinafter: CUP)
- Resale Price Method (hereinafter: RPM)
- Cost Plus Method (hereinafter: CPM)
- Price on Import Quotation (hereinafter: PIQ)
Brazil’s transfer pricing rules use traditional methods likewise the CUP, RPM, and CPM methods, which apply fixed profit margins instead of comparing market prices directly. These methods are based on formulas inspired by OECD guidelines. In addition, Brazil uses another ad-hoc method for the export and import of commodities, such as the PIQ. According to the rules, there are also specific processes for calculating prices in the trading of goods and interest rates for loans between affiliates. Brazil does not apply “best method” or “most appropriate method” principles, rather the choice remains on the judgment of the parties.
Comparability Analysis
Brazil’s TP rules under the new transfer pricing regime of Law No. 14,596/2023 ensure that transactions between related parties are consistent with market conditions as though they had been conducted between independent parties. Specifically, articles 3 and 4 stipulate the provision of an analysis needed to verify compliance with the arm’s length principle, which is to be determined by the following factors: functions, assets, risks, contractual terms, economic conditions, and business strategies. These factors make it possible to establish fair and transparent prices, reduce tax disputes, and align Brazil’s system with international standards.
Documentation Requirements
Brazilian law requires taxpayers to prepare transfer pricing documentation, and since 2024 with the introduction of the new TP framework under Law nr. 9430/1996 it includes:
- Master File
- Local File, and
- CbC Reporting
Master File: The Master File is required for multinational enterprises (MNEs) with intercompany transactions over Brazilian Real (hereinafter: BRL) 500 million (around USD 100 million) in the previous fiscal year. The master file should contain information on the MNE’s operations, including its organizational structure, business activities, use of intangibles, intercompany financial arrangements, and tax positions across different jurisdictions. The aim is to give tax authorities a comprehensive understanding of how the company operates globally and applies transfer pricing policies at the group level. The Master File can be submitted in Portuguese, English, or Spanish, but it must comply with Brazilian standards.
Local File: Local File is mandatory for entities with related-party transactions valued over BRL 500 million. While the Master File covers the whole group, the Local File applies only to the Brazilian entity and reports data on its intercompany transactions, financial information, functional and comparability analysis, and the transfer pricing method adopted. Companies with transactions between BRL 15 million and BRL 500 million (USD 3 million – USD 100 million) must submit a Simplified Local File, with less paperwork. The Local File will be in Portuguese, and compliance is required by a deadline of October 31 of the next fiscal year.
Country-by-Country Reporting: Country-by-country (CbC) filing remains in Brazil’s integrated transfer pricing and tax transparency framework. Major multilateral groups with consolidated revenues of over BRL 3 billion (approximately USD 600 million) are obligated to file CbC reports that report fundamental fiscal and financial information in all markets in which the group operates. These reports provide governments with a picture of the group’s tax, economic activity, and revenue by country, together with signs of potential transfer pricing risk and base erosion activity.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Brazil does not apply Advance Pricing Agreements (APA) however Brazil allows the use of the Mutual Agreement Procedure (MAP) to resolve tax treaty-related disputes, including those involving transfer pricing, treaty anti-abuse provisions, and double taxation. Taxpayers can request MAP assistance even if they pursue domestic judicial remedies, as long as the case isn’t already decided. Requests must be submitted to the local tax office, which forwards them electronically. While there are guidelines for filing, Brazil does not offer multilateral MAPs or arbitration for disputes. There are no fees for MAP requests, and the process follows specific timeframes outlined in the country’s regulations.
Approach to Transfer Pricing Audits
In Brazil, tax audits related to transfer pricing are conducted on a random basis, with no mandatory audit requirement. Auditors review tax returns, and cross-check electronic data provided by taxpayers. These audits are performed on a calendar-year basis, with exceptions for companies in liquidation or suspected fraud. Taxpayers must provide clear documentation of their chosen transfer pricing method and supporting evidence. If documentation is insufficient, tax authorities may use other documents or adopt a different method.
Penalties
In Brazil, penalties for noncompliance with tax reporting include a fine of R$5,000 per month, or a fraction of the month, for late filing. Additionally, if the taxpayer submits incomplete or inaccurate information, a fine of 5% of the value of the transaction(s) in the relevant period is imposed.
Taxation at a Glance
Brazil’s 1988 Constitution introduced a reformed tax system to support economic growth. The system follows a federal structure, granting distinct, autonomous tax-collecting powers to the Union, states, municipalities, and the federal district. It categorizes taxes into three main types: taxes, collected regardless of services rendered; fees, charged for public services or based on police power; and contributions for improvements, levied on property owners benefiting from public works. Each level of government has specific tax responsibilities: the federal government oversees import/export duties, income tax, and social contributions; states manage inheritance tax, goods circulation tax (ICMS), and vehicle tax (IPVA); and municipalities handle property tax (IPTU), real estate transfer tax (ITBI), and service tax (ISS).
The official name of the Brazilian tax authority is Federal Revenue.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 15% |
VAT | Federal Level – Excise federal tax (IPI): 5% – 30%; – Federal VATs (PIS/COFINS): 3.65% (cumulative) or 9.25% (non-cumulative); State Level – State VAT (ICMS): 17% – 20% Municipal Level – Municipal Service Tax (ISS): 2% to 5% (cumulative). |
Withholding tax on dividends to non-residents | 0% |
Withholding tax on interest to non-residents | 15% |
Withholding tax on royalties to non-residents | 15% |
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