New provisional measure changes Brazilian transfer pricing rules

Thursday, March 2th, 2023

Published on December 29th, 2022, the Brazilian government published the Provisional Measure (MP) No. 1,152, amending the Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) legislation to modify the Brazilian transfer pricing rules.

In general terms, the MP align the Brazilian transfer pricing rules to the Organization for Economic Co-operation and Development (OECD) guidelines, allowing multinational corporate groups to apply global standards on intercompany transactions without specific adjustment for Brazilian entities. 

Furthermore, the MP 1,152/2022 provides express and specific provisions concerning: (i) business restructuring, cash pooling, commodities, cost sharing agreements, guarantees, insurance, intangibles, intercompany financing, and services; (ii) revocation of the deductibility limits for payment of royalties and the need to enter into technology transfer agreements with the Brazilian Central Bank (BACEN) and the Brazilian Patent Office (INPI) BACEN to enable tax deduction by the Brazilian entities; (iii) non-deductibility of royalties and technical, scientific, administrative and similar assistance due to beneficiaries that are located in a tax haven or privileged tax regimes, or related parties when the deduction of amounts result in double non-taxation; and (iv) maintenance of the thin capitalization rules.

The application of the new rules is optional for the calendar year 2023, becoming mandatory from 2024 onwards.

Once it is matter regulated by MP, subject to conversion into law within a maximum period of 120 days, and as it was sanctioned by the former Government, with some uncertainty about the position of the current Government in this regard, it’s necessary to carefully analyze the adoption of the new rules for 2023.

NNB Advogados has a specialized team in tax and technology transfer agreements, qualified to assist companies in consultative and litigious demands. To learn more about how we can assist you and your company, please contact us.