BRAZIL Trends and Developments Contributed by: Celso Costa, Bruna Marrara, Luiz Rosa and Clarissa Torrente, Machado Meyer Advogados
Brazilian Transfer Pricing Regime From 1996 Until 2023: Non-Subjection of CSAs to the Legal Controls The Brazilian legislation on transfer pricing mat - ters ( “TP Rules” ) that was in force from 1996 until late 2023 set forth its application upon import and export transactions involving goods, ser - vices or rights carried out between a Brazilian resident and a foreign-related entity, or between a Brazilian resident and a company resident in a low tax jurisdiction (LTJ) or benefiting from a privileged tax regime (PTR) (both concepts are expressly defined by the Brazilian domestic leg - islation). Under this legal framework, Brazilian taxpayers had long argued that TP Rules were not appli - cable to payments made or received by Bra - zilian parties under international Cost Sharing Arrangements (CSA), which can be generally defined as multilateral agreements that aim at establishing a structure of high-quality, efficient, and shared back-office activities for the group, thereby rationalising costs incurred for this pur - pose. Such line of reasoning was due to the fact that, until 2024, those arrangements were neither dealt with nor referred to by any legislation in Brazil (tax or ex-tax). Grounded on this legal gap, it was construed that the legal nature of CSAs was not of a ser - vice rendering, but rather of a pure sharing, so that the corresponding payments had the legal nature of reimbursement of costs anticipated by the centralising entity and not of a consideration for a service provided by it. In this sense, it was upheld that: because TP Rules only applied to the import/export of goods, rights and services, the fact of CSAs not being
service arrangements would necessarily lead to the conclusion that CSAs were not subject to transfer pricing controls. The matter was brought to Brazilian tax authori - ties’ attention and the Brazilian Federal Revenue Service (RFB) issued the Consultation Proceed - ing No 8/2012 – with binding effects to the fed - eral tax administration – expressly acknowledg - ing that TP Rules would only apply to CSAs in the following instances. • In the same circumstances as the one reflect - ed in the agreement, would an independent company choose to directly develop such activity or to hire it from another legal entity. • The amount paid under the CSA does not reflect a mere reimbursement of costs antici - pated by the centralising entity and involves the charging of a profit-margin. • The benefits are not earned in a manner con - sistent with the participation of each com - pany of the group in the arrangement. • The shared activities do not offer a collec - tive benefit (the concept of CSA is tied to the anticipated cost being in the interest of all entities without distinction). • The contracting companies assume the costs but do not enjoy or even do not need the shared activities, as such scenario would evidence that, if they were independent, they would not be willing to hire nor pay for them. In addition to the above, the RFB expressly set forth that the subcontracting of activities by the centralising entity (rather than internally develop - ing them) would result in the subjection of such amounts to the TP Rules. Grounded on the above, one should note that, although at the time the Brazilian TP Rules did not have any direct relation to, nor derivation
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