BRAZIL Trends and Developments Contributed by: Celso Costa, Bruna Marrara, Luiz Rosa and Clarissa Torrente, Machado Meyer Advogados
Conversely, if, on an arm’s length basis, the activity developed by the shareholder would be reasonably charged for, then it may be deemed an intragroup service subject to the New Bra - zilian TP Rules regardless of the shareholding position of the developer. New Brazilian TP Rules: the controversy surrounding CSAs From a Brazilian domestic legal standpoint, it has been broadly admitted that the concept of service is embedded with three main character - istics. • It is derived from a bilateral (written or non- written) arrangement, in accordance to which the contracting parties are in opposite legal spheres: one aims at developing an activ - ity and the other is willing to pay for it (thus meaning that it is not conceptually admissible that an entity provides a service for its own benefit – ie, “self-service” ). • It is destined to “the market” ie, to broad and unknown third parties – and is professionally rendered by one party in benefit of another. • The party that hires the service undertakes to pay a remuneration for the obligation to do something assumed by the service renderer. At an initial glance, one could argue that a CSA should not be conflated with a service agree - ment. This perspective finds support in the above-referred Brazilian legal concept of ser - vice, characterised by a professional and profit - able relationship between the service provider and the beneficiary, irrespective of whether the companies belong to the same economic group. Since CSAs lack a profit purpose, one could argue that they should not be construed as service provision relationships.
On the other hand, parties have been uphold - ing that CSAs can be aligned with the above- referred concept of LVAIS. This alignment would become evident when recognising that CSAs involve collaborative efforts among related par - ties to deliver administrative and back-office ser - vices (non-core business), akin to activities such as human resources and information technology services. Although such concept lacks a specific legal basis (only provided for by the Infralegal Frame - work), it can be viewed as a subset of the intra- group services concept addressed by Law No 14,596/2023. As an independent normative cat - egory, it may have its defining features, poten - tially allowing tax authorities to claim it as a dis - tinct and enforceable concept, thereby avoiding confusion with the general concept of service agreements. In principle, there could be grounds to argue that the private law definition of service should still be considered by the New Brazilian TP Rules to limit the inclusion of transactions devoid of economic value, but it might be challenging to argue against these specific categories outlined by the normative provisions. From a practical standpoint, the framing of the CSAs as LVAIS for the New Brazilian TP Rules to apply would implicate concluding that CSAs are subject to transfer pricing controls, but the tax - payer may opt for a simplified approach to their application: the remuneration for the shared ser - vices will have a gross profit margin, calculated on the total direct and indirect costs relating to the transaction. In addition to the above, the feasibility of auto - matically categorising a CSA as a service-ren - dering relationship to affect other taxes is even
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