Brazil - New guidance on election to apply new transfer pricing rules

The Brazilian tax authorities on 24 February 2023, published Normative Instruction No. 2,132, which sets out the rules regarding taxpayers’ election to apply the new transfer pricing rules provided in Provisional Measure (PM) No.1,152, of 28 December 2022.

The normative instruction provides that the option to adopt the new transfer pricing rules for calendar year 2023 must be formalised in the period from 1 September to 30 September 2023. upon opening digital process through the tax authorities’ Virtual Service Centre Portal (Portal e-CAC) by attaching the option term published as an appendix. The election to adopt the new rules is irreversible and will require compliance with the new transfer pricing regime as of 1 January 2023.

For entities that begin operations or for newly created legal entity that result from a merger or spin-off during the period from September to December 2023, the election must be formalised in the first month of activity. Conversely, for entities that cease activities during the period from January to August 2023, the election must be formalised in the closing month.

NI nº 2,132/2023 also regulates the adjustments in the calculation bases of the corporate income tax and of the Social Contribution, and deductions of royalty and technical, scientific and administrative assistance.

The new transfer pricing regime is discussed in detail below.

New year, new transfer pricing rules

The Brazilian government on 28 December 2022 published draft legislation to align Brazil’s transfer pricing rules with the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

The last significant change in the Brazilian transfer pricing legislation took place 10 years ago, when Law 12,715 of 2012 introduced, for example, new margins for the resale minus profit methods (40%, 30% or 20%) and specific methods applicable to commodities (PECEX and PCI). The Brazilian transfer pricing rules continued to be considered unique around the world, given that the legislation is completely different from international transfer pricing standards.

From 2012 to 2022, many events contributed to the long-awaited alignment of the Brazilian transfer pricing rules with OECD standards.

Provisional Measure (MP) 1,152/2022 substantially changes Brazil’s tax legislation and transfer pricing rules.


For some historical context, Brazil has had a relationship with the OECD since 1998, when the OECD launched a country-specific program aimed at Brazil. Many meetings, studies, cooperation agreements and internalised rules (country by country reporting in 2016, for example) took place during the period, until Brazil made a formal request for accession to the OECD in 2017. According to OECD information published in 2018, “Brazil is the non-member country that participates in the largest number of instances of the OECD and that has adhered to the largest number of legal instruments.”

In February 2018, the National Confederation of Industries (CNI) organised, together with the OECD and the Brazilian Federal Revenue Service (RFB) the event “The OECD Transfer Pricing Standard and the Brazilian Approach: Challenges and Opportunities,” during which a joint project between the OECD and the RFB to study possible changes and alignments of Brazilian rules to the international standard was announced.

In July 2019, Brazil and the OECD released a joint statement on the work plan to be developed, which was structured in three phases:

  • Preliminary analysis of the legal and administrative framework of the transfer pricing rules in Brazil;
  • Assessment of the strengths and weaknesses of existing transfer pricing rules and administrative practices; and
  • Options for alignment with internationally accepted OECD transfer pricing standards.

In December of the same year, Brazil and the OECD released a report with the results and conclusions of the joint project. Between 2020 and 2021, efforts were maintained to finalise the new rules. In April 2022, the general presentation event of the new transfer pricing system for Brazil took place, and at the end of 2022, the publication of MP 1,152/2012.

With the alignment of the Brazilian transfer pricing rules to the OECD international standard, the MP introduces many new features for companies subject to the rules.

What changes with the new transfer pricing rules?

The MP introduces so many changes that it is difficult to highlight which are the most relevant or important. All 48 articles of the draft legislation are important, but some highlights are described below.

The structure of the new rules mirrors that of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, the reference manual used by OECD member countries.

Brazilian taxpayers may opt to adopt the new rules for fiscal year 2023, but application becomes mandatory for 2024.

The legislation based on the arm's length principle, so that the terms and conditions of a controlled transaction will be established in accordance with those that would be established between unrelated parties in comparable transactions.

Delineation of the controlled transaction: The provisional measure introduces the analysis of the facts and circumstances of the transaction considering the parties’ roles and economic risks.

Comparability analysis: A comparison between the terms and conditions of the controlled transaction with the terms and conditions that would have been established between unrelated parties, considering the economic characteristics, date of the transaction, availability of information and other factors would be available.

New methods: The transactional net margin method (TNMM) and the profit split methods are incorporated into the new rules, which would finally make non-transactional methods available in Brazil.

Most appropriate method: Under the current rules, taxpayers are free to choose the most convenient method. However, under the new rules the most appropriate method would be the one that provides the most reliable determination of the terms and conditions that would be agreed to between unrelated parties in a comparable transaction.

Transfer pricing adjustments: The adjustments made by Brazilian taxpayers under the current rules in the tax calculation base are now called spontaneous adjustment. If the company does not spontaneously make the adjustment, the tax authorities may suggest a primary adjustment. The provisional measure Introduces secondary adjustments to avoid shifting profit to other countries. Finally, compensatory adjustments -- those that result from dispute resolutions provided for in the double taxation agreements – would be available.

Specific transactions: introduction of rules for specific transactions such as commodities, intangibles, intragroup services, cost sharing contracts, business restructuring and financial operations.

Penalties: The MP Introduces specific transfer pricing penalties, with a minimum of BRL 20,000 and a maximum of BRL 5 million.

  1.  Failure to timely file a return or similar obligation would incur a penalty of 0.2% of gross revenue per month;
  2. Filing inaccurate or incomplete information, or omitting information would be subject to a penalty of 5% of the transaction value or 0.2% of the multinational group’s consolidated revenue;
  3. Filing a return that does not meet the statutory requirements for filing an ancillary obligation would be subject to a fine of 3% of gross revenue;
  4. Failure to timely submit information or documentation during an audit would be subject to a penalty of 5% of the value of the transaction.

Royalties: revocation of the deductibility limit for IRPJ and CSLL purposes from 2024.

Next Steps

Brazil is (or was) one of the few of the great economies of the world that did not follow the OECD rules. The alignment of the Brazilian transfer pricing rules to the international standard has been long-awaited by multinational groups, and will be seen as a clear advance in facilitating international transactions involving Brazil.

The Provisional Measure must be converted into law within 120 days from the time of publication. Considering the context and the current favourable environment, it is likely that this will happen. Having said that, the provisional measure could be amended, approved or even rejected.

The Provisional Measure introduced the basic principles, and the normative instruction now has provided details on those basic principles.

Hugo Amano
Vanessa Bonetti
BDO in Brazil