BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa and Urick Soares, William Freire Advogados
terion for the purposes of testing transactions involving intangibles that are difficult to value. 4.3 Cost Sharing/Cost Contribution Arrangements Law No 14,596/2023 defines cost sharing as contracts in which two or more related parties agree to share the contributions and risks relat - ed to the acquisition, production or joint devel - opment of services, intangibles or of tangible assets, based on the proportion of benefits that each party expects to obtain from the contract. Those who, in relation to it, exercise control over economically significant risks and have the financial capacity to assume them and who have the reasonable expectation of obtaining the ben - efits, are qualified as participants in the expense sharing contract: • services developed or obtained; or • of intangibles or tangible assets, through the attribution of participation or rights over such assets and that are capable of exploiting them in their activities. Although transfer pricing legislation expressly determines the levy of its rules on expense shar - ing contracts between companies in the same group, the Normative Instruction published by the Federal Revenue Service does not dedicate any specific regulations, nor does it determine the use of specific methods for the calculation of the transfer price on such transactional modality. 5. Adjustments 5.1 Upward Transfer Pricing Adjustments Adjustments can be made by the parties to the controlled transaction until the end of the cal - endar year with a view to adjusting the value of
the transaction, adapting it to the arm’s length principle. Adjustments of this nature must be reflected in the accounting records of the Bra - zilian taxpayer, as well as the other parties to the controlled transaction. Furthermore, the compensatory adjustment must be supported by the issuance of an appropriate tax document. This adjustment can be made after the end of the year but must occur before the date of send - ing the Tax Accounting Bookkeeping (Brazilian Tax Return). Transfer pricing legislation acknowledges that it lacks authority to regulate the effects of com - pensating adjustments on other taxes. Never - theless, it establishes that such effects must be assessed in light of the incidence of each poten - tially affected tax obligation. In this regard, the following collateral conse - quences of compensating adjustments should be considered. • Compensating adjustments that result in an increase in the cost of imported goods or services, in addition to reducing the Income Tax base, may lead to an increase in the tax bases of customs and consumption taxes – Import Duty (II), ICMS, IPI, ISS, and PIS/ COFINS. • Adjustments that lead to a decrease in the import cost increase the Income Tax base and may, in some cases, provide grounds for the reimbursement of Import Duty and con - sumption taxes. • Positive or negative adjustments in export transactions will increase or decrease the Income Tax base but will be irrelevant for consumption taxes, given the tax exemption on exports.
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