Transfer Pricing 2025

BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa and Urick Soares, William Freire Advogados

criticised by the OECD, as will be pointed out below, especially when adopting fixed presump - tion margins. In 2012, in a first attempt to bring the Brazilian model closer to OECD standards, Law No 12,715 was enacted, which created two new methods, PCI, for imports, and PECEX, for exports. Such methods were closer to the arm’s length princi - ple, as they determined that the parameter prices would be obtained based on market quotations. It was an exclusive application model for com - modities. Although it represented an improve - ment and modernisation of Brazilian standards, the model had flaws, notably with regard to the concept of commodities, the comparability crite - ria and the regulation of adjustments to be made in comparable operations. The obligation to adopt the two new methods (PCI for imports, and PECEX for exports of com - modities) – to the detriment of the possibility of opting for the most favourable method, which existed until then – was justified in the explana - tory memorandum of Provisional Measure No 563/2012, later converted into Law No 12,715, “in order to prevent manipulation of values in import operations or exports” . Parallel to the enactment of Law No 12,715/2012, discussions on transfer pricing between the Bra - zilian Federal Revenue Service (RFB) and the OECD intensified amid the OECD/G20 BEPS Project, with two dialogue events held in 2014 and 2015. In 2017, at the invitation of Brazilian authorities, the OECD, with support from the European Commission, held a technical event in Brazil, the aim of which was to provide a recip - rocal understanding of transfer pricing systems. Still in 2017, the RFB highlighted a team of audi - tors to conduct technical studies with the aim of identifying similarities and differences between

Brazilian practices and those adopted by the OECD. The following year, a group of technical studies was officially launched to examine the similari - ties and divergences, including gaps, between Brazil and the OECD Transfer Pricing Guidelines. The group had members from the RFB and the OECD. In conclusion, it was pointed out that, combined with other unique features of the system, such as the rigid fixed margin approach and the freedom to select the transfer pricing method, the transfer pricing system in Brazil led to negative results in the following forms. • Base Erosion and Profit Shifting (BEPS), often combined with double non-taxation – prof - its that by international standards would be allocated to Brazil end up transferred to enti - ties established in low or no taxation jurisdic - tions. This prevents Brazil from collecting tax revenue in relation to profits from economic activities carried out in the country. • Double taxation – there are documented cas - es where the same profits were allocated to a Brazilian entity due to rigidity of prescribed profit margins on inbound and outbound transactions and, at the same time, allocated to the related foreign party in a jurisdiction where the arm’s length principle is used. This results in economic double taxation, in which both legal entities are taxed on the same amount of profit. This double taxation places a higher cost on trade and investment in Bra - zil when compared to other countries, which discourages the expansion of existing foreign investment, as well as new investments, and harms Brazil’s integration into global value chains.

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