BRAZIL Law and Practice Contributed by: Júlio de Oliveira, Stephanie Makin, Gabriel Lacerda and Carlos Augusto Cruz, Machado Associados
9.10 Transfer Pricing and IP Taxation In June 2023, Brazil modified its transfer pricing rules for the purposes of alignment with the OECD transfer pricing guidelines. Given that the transfer pricing rules in force until the end of 2023 were different from the OECD guidelines, as they were based on fixed margins provided for in the legislation, the introduction of more subjective rules based on the arm’s length principle substantially changed the transfer pricing regime in Brazil. As the new transfer pricing rules were only recently implemented in Brazilian legislation (January 2024) and have not been fully regulated by the tax authori - ties, it is not yet possible to determine whether the taxation of profits from intellectual property will be a source of controversy under the new regime. 9.11 Country-by-Country Reporting and Transparency Provisions Brazil has adopted a very favourable position on transparency in international taxation matters, being part of the information exchange network provided for in BEPS action 14 and having implemented the country-by-country report rules. 9.12 Digital Economy Businesses Although Brazil has not implemented changes in the legislation regarding digital economy businesses, Bra - zilian tax authorities have significantly changed their approach regarding the taxation of remittances made abroad related to the digital economy, taxing transac - tions that were not taxed before (or were subject to lower taxation). 9.13 Approach to Digital Services Taxation A few proposals related to digital taxation have been discussed in the National Congress, but none of these have been successful yet. Nevertheless, the Brazilian tax authorities adopt an aggressive approach, aiming to tax almost all digital transactions at source. 9.14 Offshore IP Provisions Royalty payments related to offshore intellectual prop - erty deployed in Brazil are subject to WHT at a general rate of 15%. Payments made to tax havens are sub - ject to an increased rate of 25%.
the number of taxes, limiting different tax treatments and reducing tax litigation was implemented. The new taxes (IBS, CBS and the selective tax) will gradually apply as of 2026. Recently, a 10% WHT on the distribution of dividends to resident individuals and non-resident beneficiaries was introduced, with the aim of guaranteeing that the overall tax burden for Brazilian companies (and con - sequently investors) will not exceed the 34% nominal IRPJ and CSLL rates. Supplementary Law 224/25 was also approved, aiming to reduce federal tax benefits by 10% as of 2026. These measures aim to maximise the tax collection. 9.6 Hybrid Instruments and BEPS Implementation Brazilian tax legislation provides for the tax deduc - tion of a type of remuneration paid to shareholders (calculated on the net worth), known as interest on net equity ( juros sobre capital próprio – JCP) – there has been some discussion as to whether this could be considered a hybrid instrument. Changes were recently introduced to legislation aiming to limit the amount of this deduction, as well as to increase the applicable WHT rate. 9.7 Interest Deductibility and Territorial Tax Regime Brazil does not have a territorial tax regime. Brazil has had rules limiting the deduction on interest for quite some time, and this has not adversely affected invest - ment. 9.8 Controlled Foreign Corporation Reform Brazil does not have a territorial tax regime. 9.9 Anti-Avoidance Rules Considering that Brazilian tax authorities already adopt a substance over form approach and tend to disregard contracts, structures and transactions where they believe there is a strong case for doing so based on a lack of substance argument, it is not likely that the new double tax convention limitations will have any impact on inbound and outbound Brazil - ian investors.
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