The Great Revolution in Intellectual Property Taxation: MP 1,152 and its effects

On December 29, 2022, the highly anticipated Provisional Measure No. 1,152 (“MP 1,152”) was published, which amends the transfer pricing (“TP”) rules for purposes of calculation of the Corporate Income Tax (“IRPJ”) and the Social Contribution on Net Profits (“CSLL”). As it is a Provisional Measure, it must be analyzed by the National Congress within 120 days, under penalty of losing its validity. Meanwhile, the application of MP 1152 is mandatory as of 2024 and optional as of 2023.

Further information on the changes brought by MP 1.152 was published by Demarest’s tax team in the Client Alert of December 29, 2022.

As this is a very relevant theme for business and contracts involving intangible assets, we would like to inform you of the major changes that MP 1,152 introduces to the intellectual property area. Among the main changes we can highlight that:

• • Regardless of whether they are subject to registration, legal protection or how they are accounted for, intangible assets are now expressly subject to the new TP controls, including those whose value is difficult to assess;

• • The legislation now regulates cost-sharing contracts between companies regarding the development, production, or acquisition of intangible assets; and

• • The old and controversial limits on the deductibility of royalties and payments for technical assistance have been repealed, and the amounts will no longer be deductible for royalties and technical, scientific, administrative or similar assistance owed to:
    (i) entities resident or domiciled in a country or dependency with favored taxation or which are beneficiaries of a privileged tax regime; and
    (ii) related parties, when the deduction of the amounts results in double non-taxation.

As can be seen, MP 1152 brings a major and anticipated revolution and, therefore, its impacts call for a cautious analysis, both in the context of international operations and within Brazil.

Our Intellectual Property and Tax teams are available to assist in the analysis of the current contracts and how MP 1152 will impact them, as well as to provide further clarifications about the changes brought by MP 1152 globally.