Market overview

The political crisis in Brazil has done much to destabilise Latin America's largest economic power. Fresh allegations of corruption – often proven true – have deepened political divisions and public distrust in governmental officials. The ensuing crisis has threatened to jeopardise the country's fragile economic recovery and, due to the political and economic instability, changes in Brazil's TP law have been minimal. However, there have been some developments in this area, which are outlined below.

In relation to BEPS, the Brazilian tax authority has enacted Normative Instruction 1.681/2016, which introduced mandatory country-by-country reporting (CbCR). CbCR will follow the OECD's documentation standard (under Action 13 of BEPS) and will relate to the tax periods starting on or after January 1 2016. Also, Normative Instruction 1.689/2017 establishes "new parameters and conditions that have to be complied with by companies when filing requests for private letter rulings in connection with transfer pricing", stated Antonio Amendola, head of tax and transfer pricing at Dias Carneiro Advogados. It has been widely suggested by practitioners that CbCR will be a tool utilised by tax authorities in audit proceedings.

In December 2016, the Brazilian tax authorities issued a new provision in Normative Instruction 1,658/2016, which included Austrian holding companies in the list of privileged tax regimes. The provision provides that Austrian holding companies, which lack substantial economic activities, will fall under this regime for Brazilian tax purposes. Remittances thus made to these entities will be subject to TP control.

Moreover, in the past year, decisions by the administrative tax court have been "very tax authority minded," according to Diego Marchant, head of transfer pricing at Marchant TP. In the Acision Telecom case (January 2017), the Administrative Council of Tax Appeals (CARF) held that cross-border transactions performed by Acision Telecom are subject to TP control in Brazil. Amendola stated this reading holds that "the transportation of goods through borders is not relevant for transfer pricing controls, but rather the expenses and revenues deriving from transactions with related parties". Accordingly, this pronouncement limits tax optimisation of back-to-back transactions and risks such transactions being assumed by other companies of the same group. "In my opinion, this is an effect of the economic crisis, which does not encourage any reduction on tax payments," stated Marchant.

Given that Brazil is part of the G20, it is expected that Brazil will revise its TP standards with the OECD's guidelines. As Brazil's current legislation is not aligned with OECD standards, "it imposes an objective calculation method to reach maximum ceilings for deductible expenses on import, and minimum gross income floors for export operations," said Maucir Fregonesi, head of tax and transfer pricing at Siqueira Castro Advogados. The latter relates to circumstances when either an import or export is performed between a Brazilian resident and a party abroad, residing in low-tax jurisdictions or jurisdictions that prohibit the disclosure of equity ownership. "Taxpayers are thus allowed to freely choose from any of the existing methods, instead of choosing the best method rule to achieve the arm's-length standard," a mechanism that is not expressly adopted under the OECD guidelines, Fregonesi added.

Georgios Anastassiadis, TP chairman at Gaia Silva Gaede Advogados, opined: "Brazil still has a long way to go in relation to the equalisation of our rules with international standards." Harmonisation with the OECD's framework would provide greater certainty on TP rules for MNEs operating within the jurisdiction. This will, in turn, bring more "transparency into the local tax system", Anastassiadis added.

Tax authorities

Secretaria da Receita Federal do Brasil
Ministério da Fazenda
Esplanada dos Ministérios, Bloco P
CEP 70048-900, Brasilia, DF
Tel: +55 61 3412 2500

Tax rates at a glance

(As of July 2017)

Corporate income tax 15%
Capital gains 15%-22.5%
Branch remittance tax n/a
Withholding tax
Dividends n/a
Interest 15%-25%
Royalties from patents 15-25%

Source: Deloitte

Firm contact details

Castro, Barros, Sobral, Gomes
Machado Associados