BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa, Matheus Di Felippo and Urick Soares, William Freire Advogados
anticipates the possible adoption of the Undertaxed Payments Rule (UTPR) in future phases, in line with global developments. By enacting these rules, Brazil aligns itself with the international tax agenda, enhances its position within the OECD framework, and strengthens the integrity of its corporate tax base. The implementation also signals Brazil’s commitment to preventing profit shift - ing and harmful tax competition, while offering greater legal certainty to multinational investors operating in the country. There is still significant debate regarding the legal - ity and compatibility of the Pillar Two rules with the Brazilian legal system. For this reason, the possibility of extensive judicial challenges to the matter cannot be ruled out. 9.5 Pillar One Amount B Brazil has not yet implemented Pillar One Amount B. 9.6 Entities Bearing the Risk of Another Entity’s Operations To the extent that transfer pricing legislation values the functions performed by the parties, the assets used and the risks assumed in the operation as elements of the economic delineation of the controlled trans - action, such criteria being fundamental for its com - parability with market operations, the assumption of risks by another entity can significantly influence the calculation of the transfer price. More than that, given the need to determine the tested party in specific cases, the “risk” element may be rel - evant to shift the perspective of the tested party from one jurisdiction to another. In any case, such elements must be the subject of a case-by-case analysis, in which, in addition to the risk, other transactional elements must be weighed. 9.7 Allocation of Profits to Permanent Establishments (PEs) Brazil does not have a comprehensive and detailed domestic regime specifically governing the attribution of profits to permanent establishments (PEs) in line with the Authorised OECD Approach (AOA).
The concept of PE is primarily addressed through Bra - zil’s tax treaties, and the allocation of profits is gen - erally based on treaty provisions (typically Article 7 equivalents) together with general domestic income tax rules. Although Law No 14,596/2023 introduced the arm’s length principle into Brazilian transfer pricing legislation, aligning it more closely with OECD stand - ards, Brazil has not yet issued specific regulations or guidance formally adopting the two-step AOA meth - odology for PEs. No specific safe harbour rules apply to the attribution of profits to PEs; allocation is determined under ordi - nary tax and treaty principles. 10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing Unlike what happens with the “OECD Transfer Pric - ing Guidelines for Multinationals Enterprises and Tax Administration 2022”, to which Brazilian legislation assigns the status of subsidiary sources for the inter - pretation and integration of transfer pricing control standards, the UN Practical Manual on Transfer Pric - ing is not elevated to the same level, which is why it does not have any normative force in Brazil. However, the document can serve as a consultation instrument for applicators of Brazilian transfer pricing rules, when involving situations similar to those under analysis by the consultant. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours In the event of a controlled transaction consisting of the provision of services with low added value, the taxpayer may opt for a simplified approach to apply - ing the transfer pricing rules, according to which the remuneration for said services must have a gross prof - it margin, calculated on all direct and indirect costs related to the transaction, of:
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