The Provisional Measure (“PM“) nº 1,152/2022 was published on December 28, 2022, which changed the rules on transfer pricing in Brazil, adopting standards more in line with the guidelines indicated by the Organization for Economic Cooperation and Development (“OECD“).

On June 14, 2023, the PM was converted without any vetoes into Law No. 14,596/2023, which provides transfer pricing rules related to Corporate Income Tax (“IRPJ“) and the Social Contribution on Net Profits (“CSLL“).

The rules are applicable for determining the IRPJ and CSLL calculation basis of legal entities domiciled in Brazil that carry out controlled transactions with related parties abroad, which are defined by law as any commercial or financial relations between two or more related parties, established or carried out directly or indirectly, including contracts or arrangements in any form and series of transactions.

The new regulation considers that they are related parties when at least one of them is subject to influence (direct or indirect) by another, which may lead to the establishment of terms and conditions in their transactions that differ from those that would be established between unrelated parties in comparable transactions.

In determining the IRPJ and CSLL tax base, the terms and conditions of a controlled transaction will be established according to those that would be established between unrelated parties in comparable transactions (called the arm’s length principle).

To verify the application of the principle, the controlled transaction must be outlined (analysis of the facts and circumstances of the transaction and evidence of the effective conduct of the parties) and the analysis of its comparability, based on the most appropriate method. It should be noted that the criteria have legally established parameters to apply the principle and enable the calculation of the IRPJ and CSLL in a controlled transaction with related parties to be carried out as if the transaction were between unrelated parties.

Besides the aforementioned dispositions, there are specific rules for transactions with intangible or hard-to-value assets, intra-group services, cost sharing agreements, business restructuring, financial operations, documents that may be demanded by the Brazilian Federal Revenue Service (“RFB“) to demonstrate the adopted calculation basis, and penalties resulting from the non-compliance with legal obligations, which vary between R$ 20,000.00 (twenty thousand reais) and R$ 5,000,000.00 (five million reais).

Finally, the law expressly foresaw that the repeal of the previous legislation that dealt with the matter will only occur as of January 1, 2024, the same date on which the law comes into effect, with the exception of its article 45, which is applicable as of the publication of the law and deals with the possibility of taxpayers opting to apply the new rules as of fiscal year 2023, in accordance with rules established by the Special Federal Revenue Service of Brazil.

Since this is a new legislation, on a subject with many details, the team from Nasser Sociedade de Advogados is available to help and answer any questions.

By Anderson Stefani, Gabriel Rhee and Luciano Tonelli.