BRAZIL Trends and Developments Contributed by: Celso Costa, Bruna Marrara, Luiz Rosa and Clarissa Torrente, Machado Meyer Advogados
ity, efficient, and shared services for the group, thereby rationalising costs incurred for this pur - pose (non-core business activities). In spite of such differences, an essential ques - tion remains: whether CSAs qualify under the newly defined categories of “services” provided for by Law No 14,596/2023 and thus are subject to the New Brazilian TP Rules. The analysis of this matter permeates the evalu - ation of the concept of Low Value-Adding Intra - group Services (LVAIS), as well as of sharehold - ers’ activities, both of which are considered An exception to the general form of assessment of the adherence of an intragroup service to the arm’s length principle for transfer pricing pur - poses set out above is the framework applicable to the LVAIS. From a Brazilian tax standpoint, in case of a Con - trolled Transaction consisting of the provision of LVAIS, the taxpayer may opt for a simplified approach to the application of the New Brazilian TP Rules, according to which the remuneration for said services will have a gross profit margin, calculated on the total direct and indirect costs relating to the transaction. Said gross profit margin shall be of (i) at least 5% in cases where the service renderer is a legal entity domiciled in Brazil; or (ii) a maximum of 5% in cases where the provider is a domiciled abroad and a Related Party to a Brazilian entity. Practically speaking, the simplified approach authorised for LVAIS dismisses the necessity of delimiting and comparing the Controlled Trans - action – and, thus, the application of the TP below. LVAIS
Adjustments – as it consists of a legal assump - tion of those gross profit margins being adherent to the arm’s length principle. In order for such simplified approach to apply, only the following can be deemed LVAIS. • Services that are of a support nature. • Services that are not part of the main activi - ties of the related party or multinational group. • Services that do not require the use of unique and valuable intangible assets and do not contribute to their creation. • Services that do not imply the assumption or control of economically significant risks by the service provider and do not lead to the creation of such significant risk for it. • Services that do not contribute significantly to the creation, increase or maintenance of value in the multinational group, to the essential capabilities or to the chances of success of the multinational group’s business. Furthermore, the following activities shall not be deemed LVAIS. • Services that constitute one of the main busi - ness activities of the multinational group. • Research and development (R&D) activities, including software development, unless they fall within the scope of low value-added infor - mation technology services. • Manufacturing and production services. • Purchasing activities related to raw materials or other materials that are used in the manu- facturing or production process. • Sales, marketing and distribution activities. • Financial transactions. • Extraction, exploration or processing of natu - ral resources. • Insurance and reinsurance activities.
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