Effective as of January 1, 2024, Law No. 14,596/2023 introduced a new legal framework for transfer pricing in Brazil regarding transactions involving intangible assets. Originating from Provisional Measure No. 1,152/2022, the Law aligns the Brazilian transfer pricing system with international practices by implementing several significant changes, including:

• The adoption of the arm’s length principle: according to this principle, the terms and conditions of a controlled transaction must be consistent with those that would be established between unrelated parties in comparable transactions;

• The establishment of specific rules regarding cost sharing agreements, including technology partnership agreements: the provisions aim to identify the participants in a cost sharing arrangement, determine the value of the contributions provided by each party, and define the compensations to be made by the other parties.

The new rules continue the flexibilizations introduced by Law No. 14,286/2021, in force since December 30, 2022, namely:

• The elimination of the limitation on royalty remittances in transactions between related parties;

• The elimination of the requirement for prior recordation of technology agreements before the Brazilian Patent and Trademark Office (INPI), as well as registration before the Central Bank of Brazil, for purposes of royalty remittances abroad – which remains mandatory for tax purposes, namely for the characterization of operational expenses and deductibility in the calculation of taxable income.

Law No. 14,596/2023 aims to eliminate barriers that hinder trade in Brazil, such as double taxation, thereby allowing greater integration between the Brazilian and international markets.

Companies maintaining agreements between related parties are advised to review their contracts in order to ensure compliance with the current legislation and avoid potential challenges from tax authorities. In this regard, should you require any assistance, please do not hesitate to contact us.