BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa, Matheus Di Felippo and Urick Soares, William Freire Advogados
It is concluded that any economic interaction existing between related parties is subject to verification of adequacy through the transfer price. The concept of the standard is so comprehensive that even omissions found in the course of commercial relations can be subject to adequacy analysis for transfer pricing. In other words, if one of the related parties remains inac - tive, when a certain active conduct is expected from them, in compliance with common market practice, this omission may be subject to transfer pricing rules. Related Parties The rule taken from Law No 14,596/2023 and Norma - tive Instruction No 2161/2023 also innovates in the concept of related parties. The previous regulations adopted a criterion in which the verification of cor - porate ties (direct or indirect) predominated for the purposes of classifying the parties as “related”. Under the primacy of economic substance, the influ - ence of one party over the other, exercised directly or indirectly, is considered as related whenever the influence of one party over the other is verified, and which may cause the transaction carried out not to occur under market conditions. The influence must be verified based on the characteristics of the transac - tion and the commercial and economic ties between the parties. Whenever business and economic cir - cumstances demonstrate the existence of significant influence of one party over the other, the application of transfer pricing rules becomes mandatory, even if there is no corporate link between the parties. In addition to related parties, transfer pricing rules are also mandatory for transactions carried out with an individual or legal entity resident or domiciled in a country that does not tax income or that taxes it at a rate lower than 17%, or that is a beneficiary privileged tax regime. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods In view of the alignment with the OECD Transfer Pric - ing Guidelines for Multinational Companies and Tax Administrations, the methods adopted by Brazilian legislation are the same as those regulated by the
OECD. The methods are described in this section. However, first the authors present the practices that must precede the choice and application of methods. Delineation of the Controlled Operation Once the controlled transaction has been identified, its real economic content must be extracted from it (delineation). This task requires knowledge and analy - sis of: • the economic sector in which the taxpayer oper - ates and the elements that affect the performance of a company’s commercial operation in that eco - nomic sector; • the taxpayer’s organisational structure; • the functions, assets and relevant risks assumed by the entities that are part of the group in which the taxpayer is included; and • the production chain and its added value. The delineation of the economic content of the trans - action must be done based on the analysis of the fac - tual and circumstantial elements of the transaction, and it is recommended to check the economically relevant characteristics listed below, always seeking the options realistically available for the transaction. • Contractual terms of the transaction – the attribu - tion of rights and obligations between the parties, written or unwritten, the analysis of facts and cir - cumstances and evidence of the effective conduct of the parties, which will supplement or, in the event of a divergence, take precedence over writ - ten documents (primacy of economic substance over legal form). • Of the functions performed by the parties to the transaction (functional analysis), considering the assets used, which can be known from the analy - sis. • Of the economically significant risks assumed (risk assessment), a task that requires the following analyses: (a) the specific identification of economically sig - nificant risks for the transaction; (b) the identification of how economically signifi - cant risks are contractually assumed by the parties to the controlled transaction; (c) the identification of how related parties operate
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