BRAZIL Trends and Developments Contributed by: Raquel Novais, Marco Behrndt, Daniella Zagari and Clara Gomes, Machado Meyer
Transfer pricing Brazil’s new transfer pricing rules are also expect - ed to generate significant controversies. Law No 14,596/2023 aligned the Brazilian framework with OECD standards by replacing the previous regime, based on fixed margins and more objective criteria, with a system grounded in the arm’s-length principle, requiring comparability analysis, assessment of eco - nomic substance, and robust documentation. Important challenges are likely to arise in connection with method selection, identification of reliable com - parables, particularly given the scarcity of domestic data, reliance on international commercial databases, market adjustments, and application of the interquar - tile range in situations of uncertainty. These elements introduce a higher degree of subjectivity and techni - cal complexity compared with the prior regime. While convergence with international standards may reduce double taxation risks, the initial implementation phase is expected to generate disputes regarding the inter - pretation of technical criteria, the sufficiency of docu - mentation, and the scope and depth of tax audits. Tax authorities are likely to adopt a more detailed and economically driven review approach, increasing the potential for controversy. Additional areas of attention include potential con - flicts involving Bilateral Advance Pricing Agreements (BAPAs) and Mutual Agreement Procedures (MAPs). Although these mechanisms are designed to pro - vide greater certainty and mitigate double taxation, they may give rise to procedural and interpretative disputes, particularly in cases involving co-ordination between jurisdictions, timing mismatches, or diver - gent positions between competent authorities. Over - all, the transition to the new transfer pricing frame - work is expected to reshape the litigation landscape, shifting disputes towards highly technical analyses and reinforcing the importance of consistent, well- supported economic and documentation positions. The IBS and CBS in the ICMS taxable basis The transition phase of the consumption tax reform already signals potential disputes arising from the interaction between existing taxes and the new value- added taxes. One of the most sensitive issues con - cerns the possible inclusion of the CBS – Contribuição
Social sobre Bens e Serviços (Contribution on Goods and Services) and the IBS – Imposto sobre Bens e Serviços (Tax on Goods and Services) in the ICMS taxable basis during the period in which both regimes will coexist. Although Constitutional Amendment No 132/2023 sought to reinforce neutrality, transparency, and sim - plicity, certain interpretations argue that the IBS and the CBS, as components of the value of the trans - action, could be included in the ICMS taxable basis, particularly under a traditional reading of the Kandir Law (Supplementary Law No 87/1996). This interpre - tation is likely to be challenged, as it appears incon - sistent with the rationale of the reform, may revive “tax on tax” discussions, and could generate cumulative effects incompatible with the new consumption tax model. The absence of uniform interpretation among states, combined with the extended transition period through to 2033, increases the likelihood of significant litiga - tion. This scenario may directly affect pricing, tax systems, compliance obligations, and the competi - tive position of taxpayers operating in different juris - dictions. Procedural Law Issues In addition to substantive controversies, the next cycle of Brazilian tax litigation is expected to be sig - nificantly influenced by procedural developments. The increased complexity of the new tax framework, the multiplicity of public entities involved, and the search for more efficient dispute resolution mechanisms are likely to shift part of the debate towards procedural matters. Key issues include jurisdiction, standing, institutional co-ordination, and the adequacy of avail - able procedural avenues. In particular, discussions concerning the use of arbitration in tax matters and the definition of the competent courts for disputes involving the CBS and IBS are expected to gain promi - nence. These topics are especially relevant during the transi - tion phase of the tax reform, when avoiding conflicting decisions, procedural fragmentation, and additional pressure on the litigation system will be critical. Ensur - ing coherence across jurisdictions and procedural
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