Brazil Enacts Major Changes to Its Transfer Pricing Rules

Transfer Pricing in the News

Brazil enacted Law No. 14,596 adopting Provisional Measure No. 1,152 in June of 2023. The law inaugurates a significant change in Brazilian transfer pricing rules. Brazil’s transfer pricing rules were more formulaic and not aligned with the arm’s length standard historically. The new law will align the Brazilian transfer pricing system with transfer pricing guidance from the Organisation for Economic Co-operation and Development (OECD). Taxpayers can opt into these new rules for effect in 2023, if they notify the Brazilian tax authorities during September 2023. Otherwise, the law comes into mandatory effect on January 1, 2024.

U.S. companies with Brazilian subsidiaries should evaluate opportunities for tax savings and cash repatriation where historical differences between Brazil’s rules and the U.S. transfer pricing rules have limited U.S. companies’ ability to recover arm’s length charges or to apply consistent transfer pricing models applied in other countries.  

United States – Proposed Regulations on 367(d)

Many U.S. based multinationals have migrated intangible assets to foreign corporations for a variety of reasons. Outbound transfers of intangible assets trigger 367(d) deemed royalty recognition over the life of the intangible assets. Many U.S. multinationals recognizing deemed royalties continue to evaluate repatriation of intangible assets post Tax Cuts and Jobs Act (TCJA). Businesses that transferred intangible assets offshore in transactions subject to 367(d) will be interested to follow the proposed regulations that provide guidance with regard to turning off 367(d) deemed royalty recognition where the relevant intangible assets are repatriated in accordance with the proposed regulations. 

United States – Implicit Support for Intercompany Debt

The IRS is working on guidance on group membership and passive association related to financial transactions. The term “implicit support” is commonly used related to the impacts of group membership and passive association on arm’s length pricing of related party debt transactions. Borrower creditworthiness, debt capacity, and arm’s length interest rates on intercompany debt are complex matters, but whether or not implicit support of related party impacts the arm’s length pricing of intercompany debt adds additional layers of complexity. Companies should watch for future guidance from the IRS clarifying the existing U.S. transfer pricing rules in relation to implicit support and its impact on the arm’s length pricing for intercompany debt.

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