Transfer pricing brazil: The tectonic shift in Brazil’s tax landscape
Brazil’s recent adoption of the Organisation for Economic Cooperation and Development’s (OECD) standard transfer pricing rules heralds a transformative shift in the Latin American tax paradigm. Marcum LLP* provides an overview of the new rules, which apply from 1 January 2024.
As the ink dries on Law No 14,596, signed on 15 June 2023, Brazil is ushering in a groundbreaking epoch of tax governance. Leaving behind its conventional transfer pricing regulations, Brazil is embracing a cutting-edge suite of rules modelled on the OECD Transfer Pricing Guidelines, thus marking a pivotal stride towards aligning more closely with global economic norms.
The adoption of the OECD based rules will be mandatory beginning on 1 January 2024. Nevertheless, Brazilian taxpayers can opt to voluntarily adopt them effective 1 January 2023.
Brazil is adapting to OECD standards
This transformation does is not happening in a vacuum; instead, it represents the climax of Brazil’s sustained commitment to assimilate to the OECD standard – a move of profound consequence for the tax environment in Latin America’s economic titan. Apart from curbing the risk of double taxation in cross-border intercompany dealings involving Brazilian firms, this progression positions Brazil to deepen its integration into global value chains, thereby spurring trade and investment.
A key component is the introduction of the Arm’s Length Principle (ALP), which replaces the outdated fixed-margins system. This new framework, which includes comparability analysis, specified methodologies, documentation requisites, and other technical facets, is largely in sync with the OECD standard. However, subtle divergences persist, particularly around certain transaction types that veer from the standard. The regulation also integrates departures from the preliminary measure issued in October 2022, notably with respect to intercompany royalty disbursements and commodities transactions.
The new transfer pricing rules in Brazil offer advantages, but also hurdles. We can explain the rules to you.Mark Chaves, Partner, Co-Leader International Tax Services, Marcum LLP*, Miami, Florida, USA
In a proactive response to potential transitional obstacles, the Brazilian tax authority has pre-emptively published supplementary guidance for early adopters of the 2023 rules and a pledge to provide future regulations to ensure clarity and seamless execution.
Multinational enterprises (MNEs) with operations in Brazil, or US-based subsidiaries of Brazilian MNEs, should meticulously examine this legislation. The reverberations of this legislation could be extensive, especially regarding the possibility of claiming foreign tax credits in the US against Brazilian income taxes.
Multinational enterprises can apply foreign tax credit
The US Foreign Tax Credit (FTC) final regulations, unveiled on 28 December 2021, are a crucial facet to be aware of. These regulations set forth a new attribution stipulation to the “net gain” condition, establishing whether a foreign tax qualifies for credit in the US. If a foreign tax is applied on residents within a specific jurisdiction, the FTC regulations postulate that such a tax will meet the attribution prerequisite only if the allocation rules employed in the taxing jurisdiction are in line with the ALP as stated in US transfer pricing regulations and OECD guidelines. As a result of these regulations, certain foreign taxes paid may not be creditable as FTCs in the US.
This legislative evolution underlines the importance of keeping abreast of global tax trends. The dynamic nature of the international tax sphere necessitates an active and informed stance to adeptly steer potential tax implications, and properly manage a company’s global effective tax rates.
For further information please contact:
Mark Chaves
Partner, Co-Leader International Tax Services
Marcum LLP*, Miami, Florida, USA
Email: mark.chaves@marcumllp.com
Sophia Castro
Transfer Pricing Manager
Marcum LLP*, Windsor,Colorado, USA
Email: sophia.castrojurado@marcumllp.com
*Marcum LLP is the exclusive associated partner of ECOVIS International for accounting, tax and audit in the United States of America.