On June 15, 2023, without any presidential vetoes, Law No. 14,596/23, which provides for amendments to the Brazilian transfer pricing legislation, was sanctioned.
Its content was initially presented by Provisional Measure nº 1.152 (“MP nº 1.152/22”), published by the Executive Branch on December 29, 2022, and, subsequently, analyzed and occasionally amended by the Legislative Branch.
Briefly, the Law enacted maintains the essence of the long-awaited measure, which seeks greater convergence between Brazilian rules on the subject and those guidelines published by the Organization for Economic Cooperation and Development (“OECD”), and the purpose previously announced plan to treat taxpayers who are subject to transfer pricing controls in Brazil in a similar way to what happens in jurisdictions where people linked to them are located, in order to avoid economic double taxation.
After all, Brazilian rules will adopt the main elements already widely used by other foreign legal systems, such as:
(i) The full and express adoption of the arm's length principle instead of the current application of predetermined margins;
(ii) The extension of effective transfer pricing controls to royalty payments for the use of intangibles, intragroup services and cost sharing; and
(iii) Greater focus on factual and economic considerations of the controlled operations, taking into account, especially, the functions performed, the assets used and the risks assumed by the related parties, in order to better delineate the controlled transactions.
Additionally, the topics below regarding royalties were also present on the sanctioned law:
(i) Revocation of Royalty deductibility limits;
(ii) General prohibition on the deduction of royalties and technical, scientific, administrative or similar assistance paid to related parties if it results in double non-taxation.
From a practical perspective, it is worth remembering that the new rules introduced by Law No. 14,596/23 will only become mandatory for Brazilian taxpayers as of the calendar year 2024. Their application for the current calendar year 2023 is at the discretion of the taxpayers and it depends on them opting, irrevocably and in the month of September, for its adoption this year – as provided in Normative Instruction RFB nº 2.132/23.
Now, it is expected that the Federal Revenue of Brazil will publish new normative instructions regulating the application of the new transfer pricing rules, both for the current year of 2023, for taxpayers who wish to anticipate their application, and for subsequent years, when they will become general observance.
