Introducing the Arm’s Length principle in Brazil

January 11, 20230

After years of cooperation between the Receita Federal do Brasil (“RFB“) and the OECD, on 29 December 2022, Brazil issued the Provisional Measure n. 1.152 (“MP 1.152/22“), introducing the Arm’s Length principle (“ALP“) and aligning the Brazilian rules to the OECD standards.

The MP 1.152/22  is expected to be converted into law by 2024, with optional implementation in 2023. Below you may find our brief comments on MP 1.152/22:

  • MP 1.152/22 foresees the application of the five TP OECD Methods (Comparable Uncontrolled Price, Resale Price, Cost Plus, Transactional Net margin, Transactional Profit Split, and other or unspecified method), with a preference for the CUP. The best method rule is applicable;
  • A special rule applies to commodities. Pricing should always be priced based on the CUP method if reliable information is available;
  • The tested parties can be local or MP 1.152/22 does not provide further guidance on the scope but most likely will apply to the Latin America parties;
  • Tax certainty and simplification measures, such as APAs and safe harbors, have been implemented;
  • Specific rules apply to intangibles and restructurings, services, financial transactions, insurance, and cost-sharing agreements;
  • No reference is made to the status of the OECD transfer pricing guidelines;
  • Additional anti-avoidance provisions apply to royalties’ deductions;
  • Penalties are applicable for noncompliance with the documentation requirements.

Even with the conversion of the MP 1.152/22 into law, the RFB should clarify several points, such as TP Documentation obligations, concerning deadlines, languages, and thresholds.

Effective date:

  • 2023 – Optional
  • 2024 – Mandatory

The MP 1152/22 must pass through Congress to be converted into law and take full effect. Considering that the changes concern corporate income tax, even if the MP is passed into law in 2023, the new rules will only be mandatory as of 2024.

In view of the abovementioned obligations, please feel free to reach out if you have any further questions or need support.

Authors: Victor Caligiuri, Associate at TPA Global & Máté Bor, Junior Associate at TPA Global

Source: MP 1152/22

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