Federal Revenue Office Issues Important New Regulation On Transfer Pricing

The recent Normative Ruling 1,870/2019 has amended Brazilian domestic legislation on transfer pricing, clarifying some details on how it is calculated. These include the correct assessment period, taking into account the characteristics of each arm's length method, and how the adjustment must be added back to the corporate income tax calculation basis.

Additionally, the new legislation also clarified some aspects of items that must compose the practiced price and/or the arm's length price, such as freight and insurance, as well as the initial inventory.

Finally, the divergence margin calculation was changed for the 2019 calendar year to align domestic procedures with international practices.

Deadline for Ultimate Beneficial Owner Disclosure has Been Extended by the Brazilian Tax Authorities

Aiming to comply with the OECD/G20 Base Erosion and Profit Shifting (BEPS) approach and to create greater transparency in its business environment, the Brazilian Government has passed legislation requiring companies incorporated in Brazil to identify their ultimate beneficial owners and report them to the local tax authorities.

Originally, these companies would have to report their ultimate beneficial owners by December 31, 2018. However, Normative Ruling 1,863/2018 has extended this deadline by 180 days, so ultimate beneficial owners will have to be reported to the local tax authorities by the end of June of 2019.

Brazil Aims to Increase its Double Taxation Convention Network

In November 2018, Brazil and the United Arab Emirates signed a Double Taxation Convention, which still has to be approved by the Brazilian Congress and promulgated by a Presidential decree in order to become effective.

In addition, the Brazilian government is negotiating a Double Taxation Convention with the Czech Republic, as well as amending protocols to the existing agreements with Mexico and Canada, aiming to adapt them to the BEPS's minimum standards.

Brazil Regulates the Dispute Resolution Mechanisms Provided for in Double Taxation Conventions

The Mutual Agreement Procedure (MAP) is a mechanism to resolve disputes arising from Double Taxation Conventions. Although all of the Brazilian Double Taxation Conventions contain MAP clauses, there was no domestic legislation regulating the subject in Brazil until the enactment of Normative Ruling 1,669/2016.

This legislation was recently replaced by Normative Ruling 1,846/2018, which complies with the minimum standards of BEPS Action...