KPMG report: Brazil’s proposed transfer pricing rules, implications for intercompany financial transactions

How Brazil’s proposed changes to its transfer pricing regime may affect intercompany financial transactions

Brazil’s changes to transfer pricing regime may affect intercompany financial transactions

Brazil—one of the largest economies and one of the world’s largest commodity exporters—is in the process of shifting from its unique, historical transfer pricing system, which relied on standard fixed gross margins or markups, to an arm’s length standard largely consistent with the 2022 OECD transfer pricing guidelines.

The proposed transfer pricing system would incorporate several key features of the OECD transfer pricing framework including:

  • Transfer pricing methodology and valuation techniques
  • The possibility of testing related foreign parties to a Brazilian transaction
  • The OECD concept for cost contribution arrangements
  • Rules addressing internal restructurings
  • Authority for the Brazilian tax authorities (RFB) to enter into advance pricing agreements and conclude mutual agreement procedures
  • Expanded BEPS Action 13 documentation requirements, including Master file and Local file

The new system also ensures consistency with transfer pricing recommendations for financial transactions aligned with Chapter X of the OECD transfer pricing guidelines. The RFB does not intend to allow any grandfathering of financial transactions executed under Brazil’s historical transfer pricing system. This means that all existing Brazilian intercompany financial transactions will need to be reviewed and, if necessary, repriced, before multinational enterprises adopt the new system.

The government of Brazil on 28 December 2022, issued Provisional Measure No. 1,152, which incorporated these changes. Although the provisional measure became effective immediately, it needed the approval of the Brazilian National Congress (the lower house (Chamber of Deputies) and the upper house (Federal Senate)) to, in effect, finalize the decision to embrace the new transfer pricing system. Both the Chamber of Deputies and the Federal Senate have now approved the provisional measure (with some minor modifications to the original bill) paving the way for an alignment of Brazilian law with the OECD’s transfer pricing paradigm.

Under the approved bill, taxpayers must apply the new transfer pricing rules to their Brazilian intercompany transactions for tax periods beginning on or after 1 January 2024. Significantly, the bill allows taxpayers to elect application of the new rules for the 2023 tax period. Taxpayers will need to make the irrevocable election to do so in September 2023.

Read a May 2023 report* [PDF 334 KB] prepared KPMG LLP tax professionals that discusses how Brazil’s proposed changes to its transfer pricing regime may affect intercompany financial transactions.

*This article originally appeared in Tax Notes International (29 May 2023) and is provided with permission.



The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.