New Transfer Pricing Challenges in Brazil

Since 1991, whenever a Brazilian company had to pay royalties for the use of industrial property rights (“IPR”) to a related foreign company, the respective contract had to be registered at the National Institute of Industrial Property (INPI). Among several rules, the payments were subject to limits ranging from 1% to 5% of the net sales revenue of the contracted products, depending on the sector of activity – these limits were also applied for tax deductibility purposes.

With the entry into force of Law 14.286/2021, this legal environment changed dramatically - at the end of December 2022, it eliminated the requirement for registration of contracts with the INPI for purposes of remittance of royalty payments. More recently, Law No. 14.596/2023 instituted the transfer pricing regime for dealings in intangible assets, creating a new rationale for the tax deductibility of remuneration relating to industrial property rights.

In this publication, we will briefly address the challenges posed to businesses by the new transfer pricing rules, as well as some approaches that may be useful for companies that need to deal with these issues.