New transfer pricing regulations and cost sharing agreements

The new transfer pricing regulations were published by the Federal Revenue Office of Brazil (“RFB”). RFB Normative Instruction No. 2,161, of 2023, which resulted from Law No. 14,596/2023, provides for transfer prices that will apply to transactions carried out by legal entities domiciled in Brazil with related parties abroad, as well as other provisions.

This normative instruction has a broad impact on international transactions between related parties, and specifically impacts cost sharing agreements, especially those entered into between companies of the same group (domiciled in several countries abroad and in Brazil), which regulate how expenses incurred by one of them (for their own benefit and of others) must be borne and proportionally reimbursed.

Article 53 of  Normative Instruction No. 2,161 determined that in the case of a controlled transaction involving the provision of low value-added services, taxpayers can opt for a simplified approach to apply this normative instruction, according to which the remuneration for the services mentioned will have a gross profit margin (minimum or maximum, depending on whether the transaction is an export or import), calculated on the total direct and indirect costs relating to the transaction.

Normative Instruction No. 2,161 defines the parameters that must be met for services to be considered of low value-added. It is worth highlighting that, among other services, according to this normative instruction, the services that the multinational group also provides to unrelated parties are not deemed low value-added services.

Consequently, in many cases, it will be necessary to review the terms of the cost sharing agreements already signed between companies of the same group in order to adapt them, in 2024, to the new regulations, thus establishing the use of an appropriate allocation method or sharing criterion to determine the cost of low-value-added intragroup services between group members proportionally to the benefits or expected benefits for each group member.

Our Tax and Commercial Agreements and Negotiations teams are available to assist with any reviews of sharing criteria and cost sharing agreements.