BRAZIL Law and Practice Contributed by: Júlio de Oliveira, Stephanie Makin, Gabriel Lacerda and Carlos Augusto Cruz, Machado Associados
4.6 Local Transfer Pricing Rules and OECD Standards The Brazilian transfer pricing rules have been substan - tially revised to align with the OECD transfer pricing guidelines. Although the rules only came into force in 2024, issues faced in recent years relate to difficulties in obtaining local comparables and timing issues with respect to performing year-end adjustments. Local legislation requires that the year-end adjustment is made at the end of the calendar year to which it refers. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures Historically, the Brazilian tax authorities have tended to be aggressive regarding transfer pricing rules, even using secret comparables. Transfer pricing disputes are generally settled in administrative tax courts. Brazil does not include compensating adjustments in double tax treaties (Article 9.2 of the OECD Model Tax Con - vention). As such, double tax treaties are not used to settle transfer pricing disputes. Although the mutual agreement procedure (MAP) is regulated in local legislation, this procedure is not yet common in Brazil. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments The Brazilian transfer pricing legislation in force pro - vides for compensating adjustments when the transfer pricing adjustment is performed spontaneously by the taxpayer, as long as certain requirements are com - plied with. Compensating adjustments are not allowed when a transfer pricing claim is settled. 5.2 Local Branches and Local Subsidiaries Local branches and subsidiaries of non-local corpora - tions are subject to the same tax treatment. 5.3 Capital Gains of Non-Residents Capital gains acquired by non-resident individuals and legal entities on the sale of stock in local corporations are subject to WHT at progressive rates of 15% to 22.5%. If the beneficiary of the capital gain is domi - ciled in a tax haven, WHT of 25% applies, regardless of the amount of the capital gain.
WHT on dividends, this scenario will certainly change as of 2026. Currently, the countries with which Brazil has signed a tax treaty, and which have the largest investments in Brazil, are the Netherlands, Luxembourg, France and Spain. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices Due to the Brazilian IRPJ/CSLL particularities and to the fact that dividends were exempt from taxation in Brazil until 2025, it was not usual for Brazilian tax authorities to challenge the use of treaty country enti - ties by non-treaty country residents. Nevertheless, the most recent double tax treaties signed by Brazil provide for limitations on the entities that are entitled to the benefits of a double tax treaty. 4.4 Transfer Pricing Issues for Inbound Investors In the years after the substantial change to transfer pricing rules (for the purposes of alignment with the OECD transfer pricing guidelines), Brazilian corpora - tions have tended to face issues regarding uncertainty about the tax treatment to be given by the Brazilian tax authorities in relation to customs duties when the taxpayer performs a year-end adjustment, as well as regarding the lack of options to resolve double tax scenarios (due to the fact that double tax treaties signed by Brazil do not provide for compensating adjustments). Other practical issues include the lack of regulation on special situations such as transactions involving intan - gibles, cost contribution arrangements, intercompany services and advance pricing agreements. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements Considering that the new Brazilian transfer pricing rules, mandatorily in force as of 2024, are based on the arm’s length principle, it is possible that discus - sions on the use of such arrangements will arise in the coming years.
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