BRAZIL Trends and Developments Contributed by: Celso Costa, Bruna Marrara, Luiz Rosa and Clarissa Torrente, Machado Meyer Advogados
Whenever the comparability analysis provides that the Controlled Transaction has deviated from the arm’s length conditions, there may be upward or downward adjustments to the taxable basis of the CIT due by the Brazilian taxpayer ( “TP Adjustments” ). New Brazilian TP Rules: services A Controlled Transaction comprises any com - mercial or financial relationship between two or more Related Parties, directly or indirectly established or carried out, including contracts or arrangements in any form and “series of trans- actions” , such as the following. • Transactions involving tangible goods, includ - ing commodities. • Transactions involving intangibles. • Services of any kind. • Cost-sharing agreements. • Business restructurings, including the ter - mination or renegotiation of commercial or financial relationships. • Financial operations, including debt opera - tions, intra-group guarantees, centralised treasury management agreements and insur - ance contracts. • Transactions aimed at disposing or transfer - ring of assets, including shares and other participations, even if through capital return or subscription operations. • Any sale, assignment, loan, lease, licensing, advance and contribution. Specifically in connection with “services of any kind” , Law No 14,596/2023 provides that, for the New Brazilian TP Rules to apply, a service comprises “any activity carried-out by a party, including the use or availability of tangible or intangible assets or other resources by the ser- vice renderer to the beneficiary, which results in benefits for one or more parties” and such ser -
vice is deemed a Controlled Transaction when - ever the renderer and the beneficiary are Related Parties in accordance with the concept provided for by the law. A benefit is deemed as resulting from an activ - ity developed by one related party to another when it provides reasonable expectation of economic or commercial value to improve or maintain either party’s commercial position, in such a way that unrelated parties in comparable circumstances would be willing to pay for said activity or carry it out on their own. The inclusion of the “benefits test” in the Bra - zilian legal framework, aligned with OECD Guidelines, serves as a criterion for determining whether specific activities qualify as intra-group services for purposes of the application of the New Brazilian TP Rules. In this regard, the law delineates activities that do not yield benefits, such as those conducted by shareholders (as per the below details) or the duplication of ser - vices already provided by the relevant taxpayer. Furthermore, Law No 14,596/2023 has intro - duced the concept of Cost Contribution Agree - ments (CCA) within the scope of transfer pric - ing regulations as contractual arrangements between companies aiming to collectively bear the costs and risks associated with producing or acquiring intangible assets, tangible assets, or services. The underlying purpose is for these assets and services to generate benefits tai - lored to the individual businesses of each entity involved. Technically speaking, CCAs differ from CSAs, which involve the sharing of costs related to the development of administrative or back-office activities by centralising companies. The aim of CSAs is to establish a structure with high-qual -
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