Brazil

Market overview

Brazilian authorities have been busy dealing with a political and economic crisis, meaning there have not been any significant direct changes to the transfer pricing market. However, the devaluation of the Brazilian real has affected taxpayers in more areas than one. Imports have become costly, and companies that use the resale price minus profit method for their inbound transactions have seen higher taxable adjustments.

Brazil's transfer pricing rules have been subject to a lot of criticism for being out of line with the OECD guidelines on transfer pricing, but the country is moving closer than ever before to the organisation's standards. "I think that in the last five years, Brazilian authorities have understood that being active with the OECD is very important to them," said Ana Utumi, head of tax at Tozzini Freire.

Luis Rogério Farinelli, head of transfer pricing at Machado Associados, said that the tax authorities tend to pay attention to the lowering of import prices in order to avoid the reduction of customs duties collection, but on the other side, in terms of corporate tax, the tax authorities pay attention to the artificial increase of import prices aimed at avoiding the transfer of more money abroad and reducing income tax in Brazil.

"The taxpayer can choose the best method available in the transfer pricing legislation in order to comply with the rules and not cause any adverse impact in the global transactions. This is quite different compared to the OECD models," said Farinelli.

But being out of line with the OECD guidelines does not necessarily mean an underdeveloped transfer pricing system. "My opinion is that we have a number of legislations, including in transfer pricing, that are even stricter than what BEPS recommends," Utumi said.

Whether Brazil will take the plunge and swap its own rules for the OECD guidelines, or even adopt some policies to draw closer to the international standard, is something many practitioners are uncertain about. "Brazil is already participating in OECD meetings as a collaborator (key partner)," said Ricardo da Silveira, partner at Machado Associados. "We don't know exactly if and when the country will become an OECD member, but I think it would bring very significant benefits for the country in terms of international commerce," he said.


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
Website: www.receita.fazenda.gov.br


Tax rates at a glance

(As of June 2016)

Corporate income tax rate 15% (a)
Capital gains tax 15/25% (b)
Branch tax 15% (c)
 
Withholding tax
Dividends n.a.
Interest 15/25% (d)
Royalties 15%
Branch remittance tax n.a.
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited (e)

  1. In addition to the statutory corporate income tax rate of 15%, a surtax of 10% on income of more than BRL240,000 ($106,000) a year is imposed on legal entities and a 9% social contribution tax (CSLL) is levied on adjusted net income. For financial institutions, the CSLL rate is 15%.
  2. If the capital gains are derived by a tax haven resident, the rate is increased to 25%. As of 2017 capital gains derived by non-residents on the disposal of assets in Brazil will be subject to income tax at progressive rates as provided in the table below.

    Tranches Rates
    Capital gain up to R$ 5Million 15.0%
    Capital gain from R$ 5MM to R$ 10MM 17.5%
    Capital gain from R$ 10MM to R$ 30MM 20.0%
    Capital gain higher than R$ MM 22.5%

    Non-residents investing in the financial and capital markets may benefit from distinguished tax treatment.
  3. Branches are taxed at the same rates as domestic companies.
  4. The rate is 25% if the recipient is domiciled in a tax haven.
  5. The amount of the carryforward is limited to 30% of taxable income in each carryforward year.

Source: Tax advisers from BMA – BMA, Müssnich, Aragão


Firm contact details

Castro, Barros, Sobral, Gomes Advogados
Deloitte
Machado Meyer Sendacz e Opice Advogados