On December 29, 2022, the outgoing Brazilian President, Jair Bolsonaro, issued Provision Measure Number 1.152 (MP 1.152). It represents the outcome of a project that was initiated in 2018 by the Brazilian Revenue Service (RFB) and the OECD and, as expected, follows the OECD Transfer Pricing Guidelines (OECD TPG). It will be optional for 2023 and mandatory for 2024.
For more highlights from MP 1.152, see below:
- It makes clear reference to the arm’s length principle.
- It is consistent with the OECD TPG but does not specifically mention the OECD TPG.
- The definition of related parties is broad as it considers not only traditional controlled transactions but also uncontrolled transactions when one of the parties is resident or domiciled in a country that taxes income at a rate lower than 17% or nil.
- All the methods available in the OECD TPG can be applied, including non-specified methods.
- The most appropriate method controls application selection of a transfer pricing method. However, the comparable uncontrolled price (CUP) method is preferred when there is reliable information on prices or amounts of consideration arising from comparable transactions carried out between unrelated parties. An emphasis is given for the case of commodities. This is consistent with the OECD TPG and the recent guidance concerning Pillar One Amount B published by the Inclusive Framework as a Public Consultation Document.
- It contains guidance specific to the pricing of controlled transactions involving intangibles, intra-group services, financial transactions and cost contribution agreements. The guidance is consistent with the most recent OECD TPG revised in 2022.
- The mechanisms available to prevent and/or resolve transfer pricing disputes are unilateral advanced pricing agreements (APAs) and mutual agreement procedures (MAPs).
- There are specific transfer pricing penalties and/or compliance incentives regarding transfer pricing documentation. Penalties can range from BRL 20,000 (approx. USD 4,000) up to BRL 5,000,000 (approx. USD 1,000,000).
- True-up/True-down adjustments are allowed until the end of the fiscal year in which the transaction is carried out as long as performed to satisfy the arm’s length principle.
- Safe harbours were delegated to regulations to be further developed in the future.
It is important to mention that provisional measures are equivalent to Federal Law in Brazil, but they need to be validated by the Brazilian Congress in 60 days, extendable for additional 60 days. If Congress does not validate a provisional measure, it becomes ineffective. It is expected that MP 1.152 will be validated.
Kroll Transfer Pricing professionals in Brazil will continue to monitor the situation and provide updates. Please reach out to your Kroll Transfer Pricing contact to learn how to best prepare for the implementation of this legislation or for related questions. Also, please contact us for our Brazil Transfer Pricing Country Profile to help you better understand Brazil transfer pricing rules.