BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa, Matheus Di Felippo and Urick Soares, William Freire Advogados
5. Adjustments 5.1 Upward Transfer Pricing Adjustments Adjustments can be made by the parties to the con - trolled transaction until the end of the calendar year with a view to adjusting the value of the transaction, adapting it to the arm’s length principle. Adjustments of this nature must be reflected in the accounting records of the Brazilian taxpayer, as well as the other parties to the controlled transaction. Furthermore, the compensatory adjustment must be supported by the issuance of an appropriate tax document. This adjust - ment can be made after the end of the year but must occur before the date of sending the Tax Accounting Bookkeeping (Brazilian Tax Return). Transfer pricing legislation acknowledges that it lacks authority to regulate the effects of compensating adjustments on other taxes. Nevertheless, it establish - es that such effects must be assessed in light of the incidence of each potentially affected tax obligation. In this regard, the following collateral consequences of compensating adjustments should be considered. • Compensating adjustments that result in an increase in the cost of imported goods or services, in addition to reducing the Income Tax base, may lead to an increase in the tax bases of customs and consumption taxes – Import Duty (II), ICMS, IPI, ISS, and PIS/COFINS. • Adjustments that lead to a decrease in the import cost increase the Income Tax base and may, in some cases, provide grounds for the reimburse - ment of Import Duty and consumption taxes. • Positive or negative adjustments in export transac - tions will increase or decrease the Income Tax base but will be irrelevant for consumption taxes, given the tax exemption on exports. As this is an emerging topic, there have been no offi - cial statements from tax authorities regarding the col - lateral effects of compensating adjustments. However, when assessing whether to implement such adjust - ments, potential impacts on customs and consump - tion taxes should be taken into account.
5.2 Secondary Transfer Pricing Adjustments Brazil does not have rules regarding secondary adjust - ments. Brazilian legislation only provides for the possibility of the tax authorities making a primary adjustment, whose sole consequence described in the applicable rules is the increase of the Income Tax assessment basis. 6. Cross-Border Information Sharing 6.1 Sharing Taxpayer Information In recent decades, Brazil has signed a series of trea - ties and joined mutual co-operation programmes for sharing tax information. Among the most relevant expedients, the authors list the following. • Brazil has been a member of the OECD Global Forum on Transparency and Information Exchange for Tax Purposes since 2010. • Double taxation agreements, as a rule, include devices that allow the exchange of information between contracting states. Currently, Brazil has agreements in force with the following jurisdictions. (a) South Africa;
(b) Germany; (c) Argentina; (d) Austria; (e) Belgium; (f) Canada;
(g) Chile; (h) China; (i) South Korea; (j) Denmark; (k) United Arab Emirates; (l) Ecuador; (m) Slovakia; (n) Spain; (o) Philippines;
(p) Finland; (q) France; (r) Hungary; (s) India; (t) Israel; (u) Italy; (v) Japan;
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