Brazil and the OECD have been working together for the past 15 months to see whether a closer alignment between the TP system of Brazil and the OECD guidelines is possible. A joint statement of the outcomes was made public on July 11, 2019.
The work programme was structured in three stages:
1. preliminary analysis of the legal and administrative framework of Brazil’s TP rules;
2. assessment of strengths and weaknesses of Brazil’s TP rules and administrative practices;
3. options for alignment with the OECD transfer pricing standard.
During this process, among others, 30 main gaps/issues were identified of which 27 increase the risk of double taxation.
Options for alignment
Two options are presented to achieve alignment with the OECD Guidelines:
1. immediate alignment;
2. alignment structured in stages to allow gradual implementation.
- The most reasonable approach appears to be to start with the largest taxpayers. The (to be determined) threshold to
determine this group can subsequently be lowered.
To preserve some elements of the current TP system some carefully tailored safe harbours or rebuttable presumptions may be included.
As next steps, political decisions should be made. The specific implementation needs of Brazil will represent an important aspect for the considerations with respect to the way forward. With the objective to aid this process of political decision-making and planning of the possible implementation, a blueprint or implementation roadmap could be developed to outline the key areas to be addressed.
Relevant for these political decisions may be that within the context of the potential accession of Brazil to the OECD, transfer pricing is one of the key areas where alignment with the OECD standard will be assessed, because it constitutes one of the core principles that any new member wishing to accede to the OECD must adhere to.
Special Secretary of the Federal Revenue Marcos Cintra commented as follows: “We look forward to the future of OECD’s collaboration with Brazil, especially through the Centre for Tax Policy and Administration of the Organisation, and we believe that this constructive dialogue will decisively support the reform process that the country needs, with the long-awaited tax reform. There is much to be done, but there are already concrete results to show, and we hope that this initiative will become one of the milestones of the transformations that the country proposes to make.”
Alignment between the Brazilian TP legislation and the OECD Guidelines is much welcomed.
The 27 issues that increase the risk of double taxation confirm our view that Brazil is one of the countries where MNEs should pay special care to with respect to Transfer Pricing to avoid double taxation.
Although alignment with the OECD Guidelines may eventually be reached, our expectation is that this will still take several years before implementation.
Quantera Global, together with its strategic alliance CBSG, has supported many MNEs with their Brazilian Transfer Pricing matters and how to deal with the potential international mismatches.
If you require support or just would like to know more details in respect of these developments, please do not hesitate to contact us.