BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa, Matheus Di Felippo and Urick Soares, William Freire Advogados
4. Intangibles 4.1 Notable Rules
counted cash flow methodology will, in general, be more appropriate in the event of transactions involv - ing intangibles that are difficult to value or corporate interests for which it is not possible to identify reli - able comparable at the time of their transfer between related parties. However, this is a mere recommendation, and it is not mandatory that taxpayers follow this criterion for the purposes of testing transactions involving intangibles that are difficult to value. 4.3 Cost Sharing/Cost Contribution Arrangements Law No 14,596/2023 defines cost sharing as con - tracts in which two or more related parties agree to share the contributions and risks related to the acqui - sition, production or joint development of services, intangibles or of tangible assets, based on the pro - portion of benefits that each party expects to obtain from the contract. Those who, in relation to it, exercise control over economically significant risks and have the financial capacity to assume them and who have the reason - able expectation of obtaining the benefits, are quali - fied as participants in the expense sharing contract: • services developed or obtained; or • of intangibles or tangible assets, through the attri - bution of participation or rights over such assets and that are capable of exploiting them in their activities. Although transfer pricing legislation expressly deter - mines the levy of its rules on expense sharing con - tracts between companies in the same group, the Normative Instruction published by the Federal Rev - enue Service does not dedicate any specific regula - tions, nor does it determine the use of specific meth - ods for the calculation of the transfer price on such transactional modality.
Although Law No 14,596 dedicates a specific section to deal with transfer pricing of intangibles, the mat - ter is still pending detailed regulation by the Federal Revenue Service. Therefore, controlled operations with this asset class are subject to the general rules for transfer pricing. 4.2 Hard-to-Value Intangibles Law No 14,596 dedicates a specific section to deal with transfer pricing on intangibles, however the mat - ter still pending detailed regulation by the Federal Revenue Service. Under the terms of the Law, in controlled transactions involving intangibles that are difficult to value, the fol - lowing must be considered for the purpose of valuing the transaction: • uncertainties in pricing or valuation existing at the time of the transaction; and • the reflections of these uncertainties in the format - ting of the contract between the parties, especially with regard to the adoption of short-term contracts, the inclusion of price adjustment clauses or the establishment of contingent payments, as well as unrelated parties would have done in comparable circumstances. Information available in periods after the controlled transaction was carried out can be used by tax authori - ties to verify the correct use of the criteria listed above. Once these criteria are not met, the governing legisla - tion determines that the value of the transaction be adjusted for Income Tax and Social Contribution pur - poses, and the adjustment must be measured based on annual contingent payments that reflect the uncer - tainties arising from pricing or evaluation of the intan - gible assets involved in the controlled transaction. By regulating the possibility of using another method, other than those listed in the legislation, the stand - ard points out that the use of alternative methods, especially those based on income, such as the dis -
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