Brazil: Update on revisions to transfer pricing rules, steps toward OECD Transfer Pricing Guidelines

Features of Brazil's transfer pricing framework

Steps toward OECD Transfer Pricing Guidelines

Representatives of the government of Brazil (including the Minister of the Economy) and the OECD’s Centre for Tax Policy and Administration met today, 12 April 2022, in Brasilia to consider revisions to Brazil’s transfer pricing rules.


With the publication in 2019 of a joint assessment of the similarities and differences between the Brazilian and OECD transfer pricing frameworks, the first analytical steps were made towards a convergence of Brazil’s unique transfer pricing system with the OECD transfer pricing paradigm.

However, with the onset of the pandemic, little was heard from the Brazilian tax authority (the Federal Revenue Service (RFB)) or the OECD regarding Brazil’s transfer pricing rules—until today’s meeting.

Status of revisions to Brazil’s transfer pricing rules

The information presented today contradicts expectations that Brazil would adopt a hybrid transfer pricing system. Rather, based on information from today’s meeting, Brazil is now inclined to fully adopt international standards on transfer pricing—that is, the OECD Transfer Pricing Guidelines.

Brazil’s transfer pricing framework is expected to have the following features:

  • The arm’s length principle—currently absent from the Brazilian transfer pricing framework—would be applicable to all types of business transactions from an inbound as well as an outbound perspective.
  • Functions, risk, and assets would be crucial for correctly delineating controlled transactions, taking into account comparability factors.
  • The transfer pricing methods included in the OECD Transfer Pricing Guidelines as well as the use of valuation techniques would be introduced into Brazilian transfer pricing legislation together with guidance on its application. This means that modern, complex value-chains would be better reflected from a Brazilian perspective by either using the transactional net margin method (TNMM) and/or the profit split method (PSM), thereby allowing them to integrate Brazilian subsidiaries into global transfer pricing models.
  • The tested party could be either Brazilian or foreign as long as the selection would be in line with the selection of the most appropriate transfer pricing method. Currently, the Brazilian tax authorities have experienced difficulties accepting foreign financial information, among other items.
  • Given that commodities represent a considerable share of the Brazilian gross domestic product (GDP), it would be intended to reform existing rules to create a stronger link to actual independent party market behavior. New rules would be based on the arm’s length principle and display more flexibility when it comes to comparability adjustments.
  • A new concept of intangible assets for transfer pricing would be introduced, would go beyond the accounting notion, and would be aligned with international standards. In addition, transfer pricing rules for intangibles would include the DEMPE concept (development, enhancement, maintenance, protection and exploitation), guidance on the lack of comparables, and how to deal with uncertainty as well as the application of valuation techniques.
  • The revision of the transfer pricing rules for intangibles would also trigger a revision of the current royalty deductibility rules.
  • Rules on intercompany services would include benefit tests, the concept of shareholder activities, and duplicative services as well as the introduction of the concept of direct charge and indirect charge. Low-value adding services would act as a safe harbor.
  • Brazil intends to align its current rules with the OECD’s concept of cost-contribution arrangements (CCA), with guidance for service CCAs and development CCAs and arm’s length compensation for entering and exiting CCAs.
  • The pricing of business restructuring is currently absent from Brazilian transfer pricing rules, but under the revisions, would include an arm’s length transfer pricing framework for the determination of compensations taking into account functions and assets as well as the profit potential transferred.
  • Brazil would adopt Chapter X of the OECD Transfer Pricing Guidelines on intercompany financial transactions. This would include loans, cash-pools, guarantees and insurance, all without affecting the interest limitation rules or thin capitalization rules.
  • Currently, Brazil only requires country-by-country (CbC) reporting. Brazil would adopt the full three-tiered transfer pricing documentation approach including the Master file and Local file, pursuant to the international best practice. The RFB is currently considering a regime of penalties to be applied in cases of insufficient documentation or non-presentation.
  • Brazil’s new framework would continue to rely on spontaneous self-administered transfer pricing adjustments, but the RFB would be authorized to conduct primary adjustments in instances of non-arm’s length transfer prices. The tax authorities currently consider the feasibility of secondary adjustments (for example, through a deemed-loan approach with repatriation option).
  • The RFB would be allowed to enter into advance pricing agreements (APA) and to conclude mutual agreement procedures (MAP), and this would require updating and broadening Brazil’s tax treaty network (viewed by some as a relatively thin treaty network) so as to include major economic players such as the United States, Germany, and the UK, among others.

KPMG observation

Tax professionals believe that these changes would be something of a quantum leap for the Brazilian transfer pricing rules—moving from a unique system to one more aligned with a global transfer pricing framework.

Taxpayers may expect to see a comprehensive framework of safe harbors that would be in line with economic reality and the arm’s length principle. Work on this part of the project is still ongoing and may be introduced as a secondary law. Some expect that this next step could be heavily influenced by current developments on Amount B pursuant to BEPS 2.0 Pillar One project.

The bottom line is that the RFB and the OECD now consider the convergence of the transfer pricing systems to be completed, and they see a move towards the adoption of the OECD standard. In 2022 and 2023, taxpayers can expect to see actions towards the adoption and operational steps of the new transfer pricing framework. However, no clear timeline for implementation of the new regime has been given. Brazilian government representatives stressed the importance of an “appropriate moment” to present the legislative proposal to the Congress. However, keep in mind that 2022 is an election year in Brazil, and in this environment, much can happen (or perhaps not happen).

For more information, contact a KPMG tax professional in Brazil:

Ericson Amaral |

Edson Costa |

Henrique De Conti |

Sebastian Hoffmann |


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