BRAZIL Trends and Developments Contributed by: Celso Costa, Bruna Marrara, Luiz Rosa and Clarissa Torrente, Machado Meyer Advogados
from, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administra - tions ( “OECD Guidelines” ), the RFB expressly adopted such soft law provisions as guidance to its conclusion on the domestic scope of the Brazilian TP Rules, which is mostly evidenced by the fact that tax authorities adopted the arm’s length principle and test benefit in a context in which they were not party to the Brazilian legal framework. Accordingly, under such regime the Brazilian TP Rules adopted a formulary approach, wherein the legal compliance with market parameters for purposes of Brazilian Corporate Income Taxes (CIT) followed objective legal criteria that made use of presumptions and adopted fixed margins for the application of the import/export methods pre-established by the legislator. Taxpayers were generally allowed to choose the method that led to the lower adjustment (excep - tion made for the import/export of commodities) and were not left with effective room to settle whether the evaluated arrangement was in line with the (concrete) market conditions. Although such regime was of a simple imple - mentation and involved a reduced controversy level during its 27 years of application, it had several deviations from the OECD model and was often argued not to be adherent to the arm’s length principle. The current Brazilian transfer pricing legislation The Brazilian transfer pricing legal framework was substantially transformed with the enact - ment of Law No 14,596/2023( “New Brazilian TP Rules” ), which resulted from a movement of the Brazilian government to align the national tax policy with the OECD Guidelines, aiming at
a potential adherence to the organisation as a permanent member. One of the most important changes brought by the new legislation is the application of the arm’s length principle, broadly reflected in the assumption that the conditions and prices of transactions concluded between related par - ties generally diverge from those that would be expected to have been carried out between independent ones. A controlled transaction comprises any com - mercial or financial relationship established or carried out directly or indirectly between two or more related parties, including by means of the execution of contracts or arrangements in any form, as well as through a series of transactions ( “Controlled Transaction” ). Once the qualification of a certain transaction as a Controlled Transaction for purposes of the New Brazilian TP Rules requires the existence of “related parties” , parties are considered to be related when at least one of them is subject to influence, exercised directly or indirectly by another party, that may lead to the establishment of terms and conditions in their transactions that differ from those that would be established between unrelated parties in comparable ones ( “Related Parties” ). Based on the above, the methodology for appli - cation of the New Brazilian TP Rules is as fol - lows: • the Controlled Transaction is first delimited; and • a comparability examination is performed to verify its adherence to market conditions fol - lowing “the most appropriate method” .
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