Transfer pricing developments around the world
- Brazil aligns transfer pricing rules with the OECD
The Brazilian government has issued new transfer pricing (TP) legislation based on the arm’s length principle, in accordance with guidelines from the Organisation for Economic Cooperation and Development (OECD). The move was prompted by recent changes to the US tax code, which no longer recognizes taxes paid in Brazil as a credit due to deviations from the arm’s length principle in Brazil’s TP system.
The new legislation, Provisional Measure 1152/2022, was published in the Official Gazette on 29 December 2022 and will come into effect on 1 January 2024. Its application is optional for the calendar year 2023, but mandatory starting in 2024. The legislation includes the following provisions:
- A definition of the arm’s length principle (ALP) and definitions for key concepts such as controlled transactions, related parties, and comparable transactions.
- Rules for the application of the ALP, including guidance on the structure of controlled transactions and comparability analysis.
- Transfer pricing methods based on those of the OECD, including the Comparable Uncontrolled Price, Cost-Plus, Resale-Minus, Transactional Net Margin, Profit Split, and other methods that produce results consistent with those of comparable transactions between unrelated parties. The legislation also provides guidance on the combination of these methods to ensure their proper application.
- Coverage of commodities and ancillary obligations, tested parties, intangible assets and hard-to-value intangibles, intragroup services, cost sharing, business restructuring, transactions involving debt, intragroup guarantees, centralized treasury management, and insurance.
- Documentation and penalty provisions, a specific consultation process for TP, and a mutual agreement procedure for TP purposes.
In addition, various other articles of Brazilian legislation will be revoked as of 1 January 2024. Provisional measures are issued by the President of Brazil and are valid for a 60-day period, which may be extended for another 60 days. After this period, they lose their effect unless they are approved and converted into law by the National Congress.
- Slovak Republic introduces changes in its transfer pricing regulation
On December 6, 2022, Parliament approved certain amendments to the Corporate Income Tax Law that affect, among other aspects, the transfer pricing regulations, which will come into effect as of January 1, 2023. Pursuant to these:
- In the event that, as a result of a tax inspection, the tax authorities make a transfer pricing adjustment, this will be made considering the median based on the corresponding economic analysis that justifies the valuation of the related transactions.
- Those related transactions subject to documentation for an amount of less than 10,000 euros, or 50,000 euros for the principal amount of a loan, will not be subject to documentation as they will considered to be immaterial.
- Taxpayers are allowed to submit transfer pricing documentation in a foreign language, although the tax authorities may subsequently request a translation of the documentation.
- The regulations include an express reference to the OECD Transfer Pricing Guidelines.
- United Kingdom
UK Transfer Pricing documentation requirements (i.e. master and local file) for international Groups with a turnover of €750m, or more, are applicable for accounting periods beginning on or after 1 April 2023.
On the other hand, changes related to the Standard Audit Trail (hereinafter, SAT) will no longer be introduced alongside the other modifications, instead, HMRC will undertake a public consultation on the SAT during 2023 after which a decision will be made as to its implementation.
The SAT represents the major UK-specific element for the transfer pricing documentation, and it is a document that covers the steps taken by members of an in-scope MNE in completing their local file.
Nevertheless, it should be noted that stronger penalty and information requirements are still expected to come into force alongside the expanded documentation requirements.