Brazil publishes Normative Instruction to regulate the new Brazilian transfer pricing system

Local contact

EY Global

19 Oct 2023
Subject Tax Alert
Categories Transfer Pricing
Jurisdictions Brazil
  • The adoption of the new Brazilian transfer pricing system is mandatory as from 1 January 2024 and optional as from 1 January 2023.
  • It will be key for multinational groups with presence in Brazil to analyze the effects of this new provision, not only from tax and transfer pricing standpoint, but also from a business perspective.
  • That analysis will enable the C-suite to proactively define the strategies to be followed under this new business environment in Brazil.

After analyzing taxpayer feedback, the Brazilian Federal Revenue Service (RFB) published Normative Instruction 2,161/23 (NI) on 19 September 2023. The NI will regulate Law 14,596/23 (Law 14,596), which deals with the new transfer pricing (TP) rules in Brazil based on the arm's-length principle (ALP).

This Alert highlights the main points raised by the NI and discusses potential next steps.


The NI confirms the application of TP rules to transactions with related parties abroad, tax havens and privileged tax regimes.

In line with the provisions of Law 14,596, the NI ratifies that the Organisation for Economic Co-operation and Development (OECD) guidelines, "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration 2022," will serve as a secondary source for applying local TP rules and can be used by taxpayers as a reference for applying the ALP, particularly for matters not yet regulated by the NI. The OECD guidelines will serve as secondary sources as long as they are approved by the RFB and are not contrary to Law 14,596 or any normative act issued by the RFB.

Main topics included in the NI

The NI addresses important issues including by doing the following:

  • Provides details on transactions subject to analysis, such as transactions involving intangibles, cost-sharing agreements, business restructurings (including the termination or renegotiation of commercial or financial relations), financial operations, and the transfer of assets (including shares and other holdings)
    • The NI also emphasizes the need to evaluate transactions involving the return or subscription of capital from a TP perspective. However, it is important to note that this provision lacks legal support, because it was not the subject of Law 14,596 and conflicts with previous legislation.
  • Clarifies the concept of related party and also brings the concept of significant influence
  • Provides practical aspects in regard to the adoption of the ALP based on (i) the outline of the transaction and (ii) comparability analysis; provides practical aspects of preparing a functional analysis; determines a comparability analysis and its stages
  • Establishes a preference for the use of domestic comparable; however, the use of non-domestic comparable (e.g., Americas region) is allowed as long as any necessary adjustment is performed (e.g., country-risk adjustment)
  • Allows for the possibility of testing transactions combined ("basket approach") when those transactions are intrinsically linked or are continuous transaction; this seems to be a sensitive topic for the Multinational Entities (MNE) that do not have segmented profit and loss
  • Allows the use of information from multiple years for applying the methods and the use of arithmetic average to determine the financial indicators of the comparables; provides that comparables with a negative weighted average of financial indicators or with a negative financial indicator in more than one period should be eliminated
  • Considers the Comparable Uncontrolled Price (CUP) (or "PIC" for Preço Independente Comparável) to be the most appropriated selection method when there is reliable information on comparable transactions (prices, consideration values, etc.)
    • In addition to the CUP method, the RFB clarifies its preference for the Resale Price Method (RPM) and Cost-Plus Method (CPM), when it is possible to apply all the methods provided for in the standard with an equal degree of reliability. Therefore, the Transaction Net Margin Method (TNMM), Profit Split Method (PSM) or other methods should be applied subject to the direct methods not being applied.
  • Clarifies the least complex entity, located in Brazil or abroad, as the tested party
    • However, if the Brazilian taxpayer fails to properly demonstrate the selection of the tested party (mainly abroad) based on the functions, risks and assets (assuming they are less complex), the RFB may define the Brazilian entity as the tested party.
  • Proceeds of three types of adjustments: (1) spontaneous adjustment, made by the taxpayer in the corporate income tax basis (CIT); (2) compensatory adjustment, made by the parties involved in the controlled transaction with the aim of adjusting the intercompany transaction; and (3) primary adjustment, made by the tax authority to increase the CIT
  • Defines some necessary requirements to follow for the compensatory adjustment (e.g., made by both entities with the same value, supported by credit/debit notes, etc.) while clarifying this adjustment does not automatically imply making adjustments to the basis for calculating other taxes (e.g., customs), which must be calculated in compliance with the applicable legislation for each tax
    • This section of the NI shifts all responsibility for regulating the other tax effects to the rules relating to the other taxes.
  • Establishes simplification measures (safe harbors) for low value-added services of at least 5% (Brazilian entity exporting services) and up to 5% (Brazilian entity importing services)
  • Clarifies that Brazilian taxpayers must prepare Master File and Local File, in addition to the Country-by-Country Report that Brazil already adopted under the NI 1,681/2016
    • The documents must be prepared and file through the RFB's portal "E-CAC" within three months after the deadline of the Tax Returns. For FY2024 and FY2023, the deadline for the Master File and Local File will be the last business day of the following year.
  • Provides that Local File complexity will follow the following combined intercompany transactions of the prior year:
    • Greater than 500 million Brazilian real (BRL 500m) — requires detailed documentation
    • Between BRL 15m and BRL 500m — requires standard documentation
    • Less than BRL 15m — is exempted from preparing the Local File and the Master File is also not required
  • Establishes that fines for not complying with documentation requirements can be up to BRL 5m.
  • Provides that early adoption of the provisions of the new TP system for FY2023 can be defined by the Brazilian taxpayer from 1 September to 31 December 2023 and the election must be made through the E-CAC portal
Next steps

The publication of the NI RBF 2,161/23 addressing the implementation of the new Brazilian TP system represents another important milestone toward to the adoption of the ALP. In addition, the RFP will likely publish additional Normative Instructions addressing other topics not included within this NI, such as commodities, intangibles, financial operations, cost-contribution agreements, business restructurings, etc.

It is important to note that Brazil is the first country with a large economy to completely change its transfer pricing rules to comply with the ALP. The resulting changes add even more complexity to the implementation of the new TP system. As such, it is crucial that the multinational groups deeply evaluate the potential effects of this new business environment in Brazil prior to defining the strategy they intend to adopt going forward.

EY will continue to monitor any upcoming change associated with the transfer pricing topic in Brazil and will update the market and provide our thoughts in a timely manner.


For additional information with respect to this Alert, please contact the following:

EY Assessoria Empresarial Ltda.
  • Gustavo Carmona
  • Marcio Oliveira
  • Caio Albino
  • Daniel Biagioni
  • Janaina Costa
  • Leandro Cassiano

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.