BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa and Urick Soares, William Freire Advogados
prise (MNE) groups with consolidated revenues equal to or exceeding EUR750 million. The legislation provides for the application of the Income Inclusion Rule (IIR), which ensures that income earned by foreign subsidiaries and permanent establishments is subject to top-up taxation in Brazil if it is taxed below the mini - mum rate. The framework also 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 posi - tion within the OECD framework, and strength - ens the integrity of its corporate tax base. The implementation also signals Brazil’s commitment to preventing profit shifting and harmful tax com - petition, while offering greater legal certainty to multinational investors operating in the country. There is still significant debate regarding the legality 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 Entities Bearing the Risk of Another Entity’s Operations To the extent that transfer pricing legislation val - ues the functions performed by the parties, the assets used and the risks assumed in the opera - tion as elements of the economic delineation of the controlled transaction, such criteria being fundamental for its comparability 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 relevant 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. 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 Pricing Guidelines for Multinationals Enterprises and Tax Administration 2022” , to which Brazil - ian legislation assigns the status of subsidiary sources for the interpretation and integration of transfer pricing control standards, the UN Prac - tical Manual on Transfer Pricing 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 consulta - tion instrument for applicators of Brazilian trans - fer 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 consist - ing of the provision of services with low added value, the taxpayer may opt for a simplified approach to applying the transfer pricing rules, according to which the remuneration for said services must have a gross profit margin, calcu -
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