General View Of The Project "Transfer Pricing In Brazil"

• Published date: 29 November 2020
• Subject Matter: Tax, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Transfer Pricing, Tax Authorities
• Law Firm: Tauil & Chequer
• Author: Mr Ivan Tauil and Thais Bandeira de Mello Rodrigues

In February 2018, the OECD and Brazil started a joint project to analyze the similarities and differences between Brazilian legislation and the transfer pricing ("TP") frameworks to assess cross-border transactions between associated enterprises from a tax standpoint. This project is within the scope of Brazil's initiative to engage with the OECD in tax-related projects, and, in a broader respects, consistent with Brazil's interest in initiating the process to join the OECD.

Stages of the Project

The project had three stages:

• Stage 1: preliminary analysis of the legal and administrative framework of Brazil's transfer pricing rules;
• Stage 2: assessment of the strengths and weaknesses of Brazil's existing transfer pricing rules and administrative practices; and
• Stage 3: options for alignment with the OECD transfer pricing standard.

Key Conclusions

The study led to the identification of certain issues resulting from gaps and differences between the Brazilian and the OECD's TP framework, which weaknesses resulted in BEPS and double-taxation issues. On the other hand, the study also identified some strengths of the Brazilian TP framework in relation to the facility of compliance for taxpayers and of administration by tax authorities. However, such strengths should not undermine the achievement of the dual purposes of the TP rules, i.e., secure the tax base in each jurisdiction and avoid double taxation. So, the objective would be to achieve the TP rules purposes consistent with the arm's length principle and internationally accepted practice, which should be achieved with the implementation of a modern, simple and efficient TP system in line with the OECD standard.

Key Reasons for the Project

• Brazil's TP regime (1996) was inspired by the work of the OECD (1979 Report) and, despite the significant revision in the OECD TP Guidelines (1995), including those derived from the BEPS Project - particularly BEPS Actions 8-10, Brazil's system remains relatively unchanged;
• Brazil's TP system contains a number of significant gaps and divergences from the OECD system, which reportedly led to double taxation and BEPS opportunities (impact on investment and revenue collection); and
• Some alignment with OECD TP framework is important for Brazil to join the OECD.

Assessment of Effectiveness and General Conclusions

• A large number of the gaps and divergences lead to instances of double taxation.
• A large number of the gaps create BEPS risks, leading to loss of tax revenue.
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