Brazil's Federal Senate approved Provisional Measure No. 1,152/2022 (MP 1,152) on May 11, 2023. It was previously passed by Executive Power and in force pending full congressional approval and potential changes. The Chamber of Representatives made only few changes to the original "bill of law," and the Senate did not make any change in the version approved by the Chamber. It is now pending ratification by the President of the Republic.
At the 90th minute (or 11th hour to those in the U.S.) of 2022, the Brazilian government issued draft legislation to align Brazil’s transfer pricing regulations with the international standards set by the OECD Transfer Pricing Guidelines.
The subject of this article is transfer pricing in Brazil with a focus on financial transactions. The topic of financial operations was recently updated both in the Transfer Pricing Guidelines of the Organization for Cooperation and Development (OECD TPG), in 2020, and in the UN Practical Manual on Transfer Pricing for Developing Countries (UN Manual), in 2021, which was launched last year at the 22nd Session of the United Nations Committee of Experts on Taxation.
As a transfer pricing practitioner with many years' experience across many industries and transactions, I’ve heard many reasons for making working capital adjustments (WCA). I’ve seen it described as ‘standard’ or ‘automatic’, as well as ‘unreliable’ and ‘rarely to be performed’. I’ve also heard some describe it as an adjustment they ‘believe in’, or an economic factor that an arm’s length party would ‘always’ take into account in their pricing. To untangle this knot, I’ve set out below some of the issues that I would consider before undertaking a WCA.
Brazil’s approach to intercompany financing may respect the currency of denomination of a multinational’s intercompany loan policies but falls short of other key aspects, such as the term of the intercompany loan. The OECD released its transfer pricing guidance on financial transactions on February 11, 2020. The guidance on the pricing of intercompany loans placed appropriate focus on the contractual terms as well as the credit rating of the borrowing affiliate.
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