Transfer pricing law passed without vetoes – 06/15/2023 – Market

The new legislation on transfer pricing —a form of taxation of international operations carried out by companies that are part of the same economic group— was sanctioned this Wednesday (14th) by President Luiz Inácio Lula da Silva (PT), without vetoes.

Law 14,596 is another step taken by Brazil to adapt its tax system to the rules of the OECD (Organization for Economic Cooperation and Development) and can also guarantee extra revenue for the government.

A provisional measure on the subject was edited in the last year of the Jair Bolsonaro (PL) government and approved by Congress in May of this year.

At the time of the vote, Minister Fernando Haddad (Finance) worked with parliamentarians to guarantee the approval of the text, which could secure up to BRL 23 billion in resources in 2024, according to estimates by the economic team.

After approval, the minister said that the proposal is essential to close loopholes in the law used by multinationals to pay less taxes in Brazil. He also stated that the Federal Revenue estimated losses of around R$ 70 billion a year with the rules then in force and expected a gradual recovery of these amounts in the coming years.

As income taxation is lower in other countries, some multinationals declare the sale of their products to branches abroad at a price close to the cost of production and, from there, complete the sale to the final recipient at the real price. With this, the total taxation of the group is reduced.

The change in legislation also prevents companies headquartered in the United States from suffering double taxation (here and abroad), since a recent change in American legislation only allows the discount of the tax paid abroad when the other country adopts the same rules on the theme.

The new rules must be compulsorily observed from January 1, 2024, but companies can choose to apply them to operations carried out since January 2023.

Partners in the tax area at Trench Rossi Watanabe, Luciana Nobrega and Clarissa Machado state that Brazil used a simpler model for transfer pricing. The rule in the OECD standards, widely used by other countries, depends on an economic analysis that involves risk operations, functions and assets used by the parties related to a transaction.

According to the lawyers, there are pending regulatory issues related to the topic that will have to be adjusted for the application of this model during this year.