Brazil and the International Transfer Pricing Standards: Provisional Measure 1,152/2022

Brazil is generally perceived as having a unique approach to Transfer Pricing (“TP”) that significantly differs from the TP rules applicable in most OECD countries. As a result, it was a welcome surprise when, in 2018, Brazil launched a joint OECD-RFB initiative announcing its intention to reevaluate this historic position by presenting a thorough and much debated project to reassess the Brazilian TP system.

The long-awaited new Brazilian TP rules were published in the final days of 2022 (on December, 29), through Provisional Measure (“PM”) 1,152/2022.

PM 1,152/2022 provides for significant changes to the Brazilian TP system by introducing the “arm’s length principle” and including comparability analysis rules in order to more accurately compare the terms and conditions of controlled transactions between related parties with transactions that would have been undertaken by independent parties.

While the goal of aligning the Brazilian TP system with the current OECD standards remains the main focus of PM 1,152/2022, many have wondered if publishing the new Brazilian TP rules under the current circumstances and political climate was a rash decision that could impact the acceptance of these rules and their enactment into law.

The rules included in PM 1,152/2022 are generally expected to become effective on January 1, 2024; however, they allow taxpayers to elect for their earlier application by making an irrevocable election to transition to the new system starting on January 1, 2023.

PM 1,152/2022 remains subject to enactment into law by the Brazilian National Congress, which may approve, amend or reject its text (partially or entirely). For its proper application, PM 1,152/2022 must be enacted into law within a period of 60 days from its publication date, (extendable for the same period -i.e., total of 120 days, suspended during Congress recess period), or it will no longer have any legal effects.

Mayer Brown’s Global Tax Team has broad and substantial expertise in assisting with transfer pricing issues based on the international standards and the arm’s length principle, as well as developing and documenting transfer pricing strategies for multinational enterprises across many jurisdictions.

Mayer Brown’s Tax Team has prepared the publication “Brazil and the International Transfer Pricing Standards: Provisional Measure 1,152/2022”.

The publication addresses the important changes recently introduced in the Brazilian TP system, summarizing and highlighting the main aspects of the new rules.