Federal Revenue Service regulates early adoption of new transfer pricing rules

New rules on transfer price will be effective as of 2024, but their application is optional as of the ongoing year

Published on February 24, in an extra edition of the Federal Official Gazette, RFB Regulatory Instruction no. 2,132/2023 came to regulate the optional early adoption of the new transfer pricing rules set forth in Provisional Presidential Decree No. 1,152/2022 for taxpayers who want to apply them as of 2023.

At the end of 2022, the aforementioned decree was enacted in order to align Brazilian standards with those endorsed by the Organization for Economic Cooperation and Development (OECD). Among the provisions set forth therein was the adoption of the arm's length principle to determine the collection of the Corporate Income Tax (IRPJ) and the Social Contribution on Net Income (CSLL) on transactions between related parties. Under this principle, said transactions are subject to the same terms and conditions as those between unrelated parties in a free trade market, so that they are carried out on equal footing.

The new rules will not be enforceable until 2024, but companies may apply them for transactions carried out as of January 1, 2023 if they so wish. To do so, they must file a digital application on the e-CAC Portal and submit the form enclosed to the normative instruction, bearing in mind that once they opt for the early compliance with the new rules, they will not be able to revoke their option.

Applications must be made between September 1 and 30, except in cases where the legal entity has just been set up or has been dissolved. Businesses starting their operations or resulting from a merger or spin-off taking place between September and December 2023 should file their request in the first month of operations. Companies dissolved between January and August must submit their applications in the month of dissolution.

The early adoption of the new transfer pricing rules also applies to royalties. Taxpayers may apply the new deduction procedures to transactions dating back to January this year, but those that fail to submit their requests within the legal timeframe are required to rectify their accounting records and amend their Statements of Federal Tax Credits and Debits (DCTF), in order to conform to the previous rules governing the deduction of royalties.

Transfer pricing in good standing

Our team at Domingues e Pinho Contadores assesses and applies transfer pricing rules in compliance with the current legislation, ensuring that the client’s transactions are carried out with total security. You can rely on our support: dpc@dpc.com.br.