In a previous blog we referred to the impact of the potential introduction of the Transfer Rricing (TP) regulations (Provisional Measure No. 1152, of 2022) issued on 28 December 2022 by the Brazilian Government. As anticipated, the President of Brazil signed, on 14 June 2023, the Law No. 14,596 that adopts such regulations from 01 January 2024. This adoption moves Brazil away from its historical formula-based approach and towards the arm’s length principle in line with the OECD guidelines.
The adoption of the new Transfer Pricing rules means the harmonization of the global treatment of the intercompany transactions (ICO) as well as the application of a OECD consistent approach to the Brazilian entities that are part of a Multi-National Entity (MNE). How can a Brazilian entity of an MNE achieve this adoption effectively?
In this blog, we lay out a few actionable tasks that a Brazilian entity of an MNE can perform in order to be compliant with the latest Transfer Pricing regulations.
Identify the potential impact on the MNE business in Brazil and abroad
- Map all the intercompany transactions where the Brazilian entity is involved and perform the corresponding benchmarks for price setting purposes. Considering that the effective date is 1st of January 2024, it is recommended to perform upfront the benchmarks for price setting purposes in 2023. This will help to anticipate the impact and be prepared for the required changes.
- Assess and update the current Transfer Pricing policy in line with the entity’s characterization and OECD Guidelines. For this, the following analysis must be performed:
- Determine the role of the Brazilian affiliates within the MNE’s supply chain
- Identify the key value drivers of the Brazilian entities within the value chain of the MNE.
- Document the intercompany transactions. This is the main line of defense if the transfer pricing is challenged. The TP documentation must include an analysis of the functions, risks and assets engaged by the parties to the transactions.
- Prepare the corresponding agreements with the indication of the terms and conditions surrounding the ICOs.
- Anticipate the effects on the income tax. The new rules will improve situations of double taxation of US MNEs having operations in Brazil as well as US subsidiaries of Brazilian MNEs that currently are not able to leverage foreign tax credits in the US for Brazilian income taxes.
Transfer Pricing compliance execution and monitoring
TaxModel’s transfer pricing tools help MNEs operating worldwide and intermediaries to get familiar, accelerate and achieve their TP compliance in line with the OECD guidelines.
TPdoc is a central platform for MNE’s key transfer pricing documentation workstreams in compliance with the OECD guidelines and can be adapted in Portuguese, Spanish and other local languages.
TPbenchmark improves the turnaround time related to goods and services benchmarks for all regions while ensuring consistency, quality, and audit trails in the benchmarking process. This tool allows the translation of the company’s website content into Portuguese and it is compatible with the raw data exported from any database such as BvD and Capital IQ. An optional feature consisting of an AI review assistant was recently incorporated into the tool, achieving around 80% savings of the benchmark preparation time.