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Brazil And The International Transfer Pricing Standards: Provisional Measure 1,152/2022 – Transfer Pricing


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Brief Background

The current Brazilian Transfer Pricing (“TP”) rules
were first enacted in 1996 with the primary goal of preserving the
national tax base against harmful shifts of profits through the
manipulation of prices in transactions between Brazilian and
foreign related parties.

Although, the explanatory statement of the relevant legislation
indicates that the rules were inspired by the international
standards, in practice, the Brazilian TP system was unique
and presented distinctive features that departed from the
Organization for Economic Cooperation and Development Transfer
Pricing Guidelines (“OECD TPG”) and the arm’s length
principle (“ALP”)

In summary, the current Brazilian TP system grants freedom to
taxpayers to elect the method to be applied (i.e., no
best method approach“), provided such
election is restricted to one of the specific methodologies set
forth by the current law (i.e., no use of “other
). Brazilian methods generally established
fixed pre-determined markups that apply to all
taxpayers in general (i.e., without regard to peculiarities of
specific sectors and segments).

Other distinctive features of the Brazilian system include: (i)
its personal, material and territorial scopes, (ii) strict
“item-per-item approach”, (iii) rejection of
corresponding adjustments to avoid economic double taxation, (iv)
lack of profit attribution rules to permanent establishment, (v)
absence of advance pricing agreements; and (vi) very little
experience with mutual agreement procedures in transfer

Historically, Brazil has reaffirmed its TP approach in the
international context1. In 2018 – 2019, however,
Brazil drastically changed its position resulting in several
developments and policy discussions around the design of new
Brazilian TP rules that would align with international

The following aspects influenced such TP alignment

Brazil and the OECD

  • In the context of Brazil potentially joining the OECD, the
    current transfer pricing rules were identified,
    among other issues, as one of the key areas where
    alignment with the OECD standards was necessary in order to align
    with a core aspect of the OECD’s international tax

  • As a response, the Brazilian Federal Revenue Office
    (“RFB”) and the OECD jointly launched a TP
    and released a joint report on December 18, 2019,
    identifying a large number of gaps and divergences between the
    Brazilian TP system and the international TP standards, and
    pointing out convergence options. Later, on April 12, 2022, RFB and
    OECD held a public joint meeting and presented the main features of
    the policy decision to achieve a full alignment with the OECD

US Regulation on Foreign Tax Credits

  • Another aspect that brought a sense of urgency to the TP
    discussions was the revamped US foreign tax credit
    (TD 9959) (the “US FTC Final
    Regulations”), which provide that a foreign tax will be
    creditable in the US only if any allocation of income, gain,
    deduction or loss between a resident taxpayer and a related or
    controlled entity under the foreign country’s transfer pricing
    rules follows the arm’s length principles (the
    “attribution requirement”), among other

  • In this context, the proposed changes in the Brazilian TP
    system have also become of great relevance for companies
    that have counterparties / or are part of multinational enterprises
    (“MNE”) with US operations
    . In fact, this was
    one of the aspects mentioned in the explanatory statement of PM
    1,152/2022 to justify its relevance and urgency.

  • The changes to the Brazilian TP rules may allow US taxpayers to
    support a position that the Brazilian Corporate Income Tax
    (“CIT”) meets the “attribution requirement”
    under the US FTC Final Regulations. However, we understand that the
    possibility of claiming foreign tax credits for Brazilian taxes in
    the United States must be evaluated on a case-by-case basis, as the
    US FTC Final Regulations include other requirements that need to be
    observed. Mayer Brown’s Global Tax Teams, from the
    Brazilian and the US offices, are at your disposal to address any
    additional questions and provide assistance in relation to these

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as well as with pension and investment funds. In December 2009,
T&C entered into an agreement to operate in association with
Mayer Brown LLP and become “Tauil & Chequer Advogados in
association with Mayer Brown LLP.”

© Copyright 2020. Tauil & Chequer Advogados, a
Brazilian law partnership with which Mayer Brown is associated. All
rights reserved.

This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.

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