Effective since January 2024, Law No. 14,596/2023 introduced a new legal framework for transfer pricing in Brazil concerning transactions involving intangible assets. Originating from Provisional Measure No. 1,152/2022, the Law aligns the Brazilian transfer pricing system with international standards and practices by implementing significant changes, including:
Key Changes Introduced by Law No. 14,596/2023
• Adoption of the arm’s length principle
Under this principle, the terms and conditions of controlled transactions must reflect those that would be agreed upon between unrelated parties in comparable transactions.
• Specific rules for cost-sharing agreements
The Law establishes specific provisions governing cost-sharing agreements, including technology partnership arrangements. These provisions aim to:
- identify the participants involved in the arrangement;
- determine the value of each party’s contributions; and
- establish the compensatory adjustments owed among the parties.
Continuation of the Flexibilities Introduced by Law No. 14,286/2021
The new framework also reinforces the flexibilizations introduced by Law No. 14,286/2021, effective since December 30, 2022, including:
• Removal of limitations on royalty remittances
The previous restrictions on royalty remittances between related parties were abolished.
• Removal of prior registration requirements for technology agreements
Technology agreements no longer require prior recordation before the Brazilian Patent and Trademark Office (BPTO) or registration with the Central Bank of Brazil for purposes of remitting royalties abroad.
However, such registrations remain necessary for tax purposes, particularly for:
- characterization of operational expenses; and
- deductibility in the calculation of taxable income.
Practical Impacts
Law No. 14,596/2023 seeks to eliminate barriers that hinder international trade in Brazil, including issues related to double taxation, thereby promoting greater integration between the Brazilian and international markets.
Companies maintaining agreements between related parties are strongly advised to review their contractual arrangements to ensure compliance with the current legal framework and to mitigate potential challenges from tax authorities.
