Effects Of Extinction Of LIBOR Rate To Brazilian TP Controls

• Published date: 05 May 2022
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law
• Law Firm: Machado Associados
• Author: Ms Stephanie Makin and Gabriel Nassar Lacerda

In 2021, the United Kingdom's Financial Conduct Authority announced several changes to the benchmark settings currently published by the ICE Benchmark Administration, including the cessation of the publication of EUR LIBOR settings, as well as the 1-week and 2-month USD LIBOR settings after 31 December 2021. The Financial Conduct Authority also decided to continue to determine and publish the 6-month USD LIBOR settings at least until the end of June 2023. These changes may have a direct impact on TP calculations performed for loans granted by and to Brazilian legal entities.

The transactions involving interest carried out by Brazilian legal entities with foreign related parties (as defined under Brazilian TP legislation), related or unrelated parties domiciled in tax havens or non-residents subject to privileged tax regimes must follow Brazilian TP rules and the thin capitalisation rules.

In accordance with Brazilian TP rules, the interest expenses incurred by a Brazilian legal entity shall be considered deductible up to the amount that does not exceed the rates determined based on the following rules (the minimum interest revenues recorded by Brazilian companies shall be calculated based on the same rules):

As a result, after the changes announced by the Financial Conduct Authority, the Brazilian companies that used to apply EUR LIBOR to comply with the TP rules to calculate the benchmark for interest expenses (or revenues) will be forced to use the 6-month USD LIBOR ("USD LIBOR 6M").

The impact that could arise for Brazilian companies may be verified by the comparable analysis of the historical variation of EUR LIBOR 6M versus USD LIBOR 6M during...