Brazil's new transfer pricing reporting requirement
On June 29, 2012, the Brazilian tax authority (RFB) published new reporting rules that require Brazilian taxpayers to electronically report information regarding all cross-border transactions related to the provision of services and the transfer of intangibles, as well as certain other transactions that affect a taxpayer's net wealth. This requirement went into effect on June 29, 2012, and impacts all Brazilian entities selling, providing, hiring or contracting services with a non-Brazilian entity, irrespective of whether the foreign party to such transactions is a related party or is domiciled in a low-tax or tax-advantaged foreign jurisdiction. Thus, U.S. multinationals investing in Brazil and U.S. subsidiaries of Brazilian parent companies must comply with the new rules. Since some taxpayers may have reporting obligations as early as the end of September 2012, companies should take immediate steps to analyze these rules.
The Brazilian rules require transactions to be supported on a strict transactional basis, and fixed statutory profit margins must be applied. The Brazilian transfer pricing rules do not provide for functional or industry analysis. The mismatch between U.S. and Brazilian transfer pricing rules may cause certain transactions to result in double taxation, and the U.S. and Brazil currently do not have an income tax treaty in force. Also, there is no option to obtain an advanced pricing agreement (APA) in Brazil. This mismatch in rules is a common problem and viewed by many as part of the price of doing business in Brazil given the transfer pricing rules in Brazil do not generally conform to the typical OECD model rules that are a foundation for most jurisdictions.
Additional rules imposing new requirements
However, the new rules do not provide a list of covered transactions, but instead direct taxpayers to a specific law on covered transactions, which includes all common transactions involving the provision of services and the transfer of intangibles. The definition of “transactions that affect net wealth” remains unclear. It is expected that the RFB will issue further clarifications and the actual electronic forms in the near future.
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This article represents the views of the author or authors only, and does not necessarily represent the views or professional advice of McGladrey.
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