Brazil: Possible alignment of transfer pricing rules to OECD Transfer Pricing Guidelines

Brazil: Possible alignment of transfer pricing rules

Historically, various alternatives and scenario focused only on a selective, a partial or a parallel alignment of the Brazilian transfer pricing rules against the transfer pricing principles of the Organisation for Economic Cooperation and Development (OECD). However, with the recently released report jointly issued by the OECD and Brazil’s tax authority (Receita Federal do Brasil—RFB), there appears to be greater clarity that the OECD expects from Brazil a full alignment with the OECD transfer pricing standards (in other words, a full-scope approach).


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The OECD and the RFB in December 2019 presented the results of their joint in-depth assessment of the similarities and differences between the transfer pricing framework currently in force in Brazil when compared against the OECD guidelines. The report sets out the international consensus on transfer pricing, and includes proposals for the introduction of the OECD principles into the Brazilian transfer pricing system.

Full alignment with OECD transfer pricing standards required

The report’s title—Transfer Pricing in Brazil: Towards Convergence with OECD Standards—shows that both the OECD and the RFB are continuing the path already taken at their last transfer pricing meeting in July 2019. Accordingly, conforming with previous announcements, the OECD and the RFB concluded in their final report (the “OECD-RFP report”) that Brazil needs to fully adopt and implement the OECD transfer pricing standards. The current Brazilian transfer pricing system has some favourable features, such as simplicity through the use of fixed profit margins, freedom of choice of method, and safe harbor rules.

Even though the possibility of a partial alignment of Brazil’s transfer pricing regime against the OECD transfer pricing rules, these considerations were dismissed as a viable option, together with any related idea for a dual system that would allow taxpayers to continue to apply existing domestic transfer pricing rules. According to the OECD-RFB report, partial alignment would create a risk that significant gaps would remain in the system—and with negative effects on tax certainty, the burden of compliance, and the risks of persistent double taxation and loss of tax revenue.

Thus, OECD and RFB concluded in the joint report that Brazil needs to fully adopt the OECD's transfer pricing rules in order to achieve, inter alia, the following benefits:

  • Avoiding and eliminating double taxation, which results from the existing gaps and divergences and the absence of a common understanding on the application of the arm's length principle
  • Preventing loss of revenue due to current BEPS practices, which also creates inequality within the current system, in that some taxpayers are treated more favorably than others
  • Increasing tax security from an international perspective and thus enhancing Brazil's attractiveness as an investment location
  • Integrating Brazil in global value chains and fostering trade and investment in Brazil
  • Facilitating Brazil’s accession to the OECD

Method of implementing the full-scope approach

With regard to the method for adopting the OECD’s transfer pricing rules, two options emerge according to the OECD-RFB report:

  • Immediate alignment of the Brazilian transfer pricing rules with the OECD Transfer Pricing Guidelines
  • Gradual alignment of the Brazilian transfer pricing rules with the OECD Transfer Pricing Guidelines (a “gradual alignment")

After evaluating the advantages and disadvantages of both options, the OECD-RFB report concludes that the gradual alignment appears to be the most sensible way going forward, especially as this approach would allow for specific challenges of small and medium enterprises to be addressed and it would provide an opportunity to prioritize and sequence the rolling-out of the new system. For instance, such gradual alignment could be based on specific thresholds so that the new transfer pricing rules could initially concern only the largest taxpayers operating in Brazil—that is, those taxpayers that are typically already familiar with the OECD standards from their operations in other OECD countries.

Recommendations for legal changes in Brazil’s transfer pricing system

The OECD-RFB report also describes guidance on the necessary changes that must be considered by Brazil in view of the discrepancies identified and the objective of achieving convergence of transfer pricing rules. These aspects could be seen as impending changes in the Brazilian national transfer pricing landscape. Key aspects include the following items (not an exhaustive list):

  • Implement the remaining BEPS Action 13 recommendations, including Master and Local file requirements
  • Restate the arm’s length principle in the domestic law and changing or refining elements that deviate from the arm’s length principle (e.g., fixed margins, comparability issues)
  • Adopt of the most appropriate method criterion and align the existing transfer pricing methods to the OECD recognized traditional transaction methods, including transactional net margin method (TNMM) and the profit-split method
  • Revise, refine or repeal existing safe harbour rules
  • Replace the strict item-per-item approach by a basket or package-deal approach
  • Implement rules that address all types of financial transactions
  • Review deductibility rules that may violate premises of arm’s length principle

KPMG observation

As a next step, it would appear that new transfer pricing rules would be developed, and that work on a first draft legislative proposal would be initiated, including the design and establishment of new safe harbour rules that provide taxpayers with the desired simplicity and enforceability. However, note that the OECD-RFB report expresses the common understanding of both parties, and this may be viewed as an important move in the right direction, given that both parties now agree on how to achieve with regard the alignment of transfer pricing rules.

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Brazil:

Edson Costa | +55 (11) 3940-5313 |

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