Transfer Pricing in Brazil under Law 14,596/2023 — the full OECD standard.

What changed in 2024 — the structural shift

Until December 2023, Brazil used a unique fixed-margin Transfer Pricing regime: PRL (Resale Price minus margin), PIC (Comparable Independent Price), CPL (Production Cost plus profit), with specific margins set by law (typically 20-30%). The regime was simple to apply but produced systematic audit assessments on royalties and intercompany imports — the fixed margins frequently diverged from actual market conditions.

From January 2024 (with optional adoption from 2023), Brazil applies the full OECD standard via Law 14,596/2023 and Normative Instruction RFB 2,161/2023. The core change: arm's length principle, five OECD methods, FAR analysis, comparable benchmarking, and tiered documentation requirements.

Legacy documentation built for the fixed-margin regime is no longer valid. Companies that continued using prior-period documentation face audit exposure under the new standard.

The five OECD methods

1. CUP (Comparable Uncontrolled Price): direct comparison with prices in transactions between unrelated parties. Highest reliability when adequate internal or external comparables exist.
2. RPM (Resale Price Method): gross margin earned by independent distributors on similar products. Standard for distribution intercompany flows.
3. CPM (Cost Plus Method): markup over production cost benchmarked against independent comparable transactions. Standard for manufacturing intercompany flows.
4. TNMM (Transactional Net Margin Method): net operating margin of the tested entity compared with margins of independent comparables. Most-used method globally — applicable when CUP/RPM/CPM are unavailable or insufficiently reliable.
5. PSM (Profit Split Method): allocates combined profit of related parties based on relative contributions. Standard for highly integrated operations where each party adds unique value.

Method selection follows the OECD's "most appropriate method" rule — driven by FAR analysis of the parties involved, availability of comparables, and reliability of each method for the specific transaction. Documentation must justify the selection. In the Brazilian law (Art. 11), the methods carry their own names — PIC, PRL, MCL, MLT and MDL — mapping one-to-one to CUP, RPM, CPM, TNMM and PSM.

Commodities: the PIC method and quoted prices

Commodity transactions between related parties have a dedicated rule. Articles 12 and 13 of Law 14,596/2023 define what qualifies as a commodity and what counts as a quoted price, and establish that where a reliable quoted price exists (on a commodities exchange or a recognized pricing agency) or an internal comparable is available, the PIC method (Comparable Independent Price — the Brazilian equivalent of CUP) is the most appropriate, unless the functional analysis shows another method better fits the value chain.

Comparability adjustments

The quoted price is the starting point, not the endpoint. Material differences between the controlled transaction and the reference market — quality, technical specification, freight, insurance, term, volume and contractual conditions — require comparability adjustments (Art. 13, §1), each documented.

The pricing date — the most litigated point

The value follows the date agreed by the parties, provided contemporaneous documentation evidences the agreement and consistency with actual conduct (Art. 13, §3). Absent that proof, the tax authority may set the value using an alternative quotation — typically the registration or shipping date (Art. 13, §4). This is where commodity TP risk concentrates: a company that does not document the pricing date loses control over which quotation applies.

Intangibles: DEMPE and the end of fixed royalty caps

Transactions involving intangibles — trademarks, patents, software, know-how, customer lists — are among the most sensitive in Transfer Pricing: value is hard to measure and easy to shift across jurisdictions. Article 20 of Law 14,596/2023 subjects these transactions to the arm's length principle and adopts the OECD logic: what matters is not who holds legal title to the intangible, but who actually creates and controls its value.

The DEMPE analysis

DEMPE stands for the five relevant functions of an intangible: Development, Enhancement, Maintenance, Protection and Exploitation. Profit attributable to the intangible is allocated to the entities that perform and control these functions and bear the risks — not to a holding that merely registers the trademark in a low-tax jurisdiction without functional substance.

Hard-to-value intangibles (HTVI)

Where no reliable comparables exist and valuation depends on uncertain projections (software under development, a molecule in trials), the HTVI approach applies: the authority may use actual ex-post outcomes as evidence of the reasonableness of the ex-ante projections. The taxpayer's defense lies in the quality of the documented assumptions.

Intragroup services: the benefit test and the 5% markup

Services rendered between group companies — management, IT, legal, finance, technical support, shared service centers — are only remunerable and deductible if they pass the benefit test: the service must provide a real economic benefit to the recipient that an independent party would be willing to pay for or perform in-house.

What fails the test

So-called shareholder activities — costs that exist only in the parent's interest, such as group consolidation, parent-level investor relations, or holding-company corporate compliance — provide no benefit to the subsidiary and are not deductible in Brazil. Mere duplication of functions the entity already performs also fails.

Low value-adding services (SBVA): the 5% markup

For routine, low-value services that are not part of the core business and involve no unique intangibles, Normative Instruction RFB 2,161/2023 (Art. 53) provides a simplified safe harbour: a markup of 5% on direct and indirect costs — a minimum of 5% when the provider is the Brazilian entity and a maximum of 5% when the provider is the foreign related party. The asymmetry protects the Brazilian tax base in both directions and removes the need for a full benchmark.

Intragroup financial transactions: loans, guarantees and cash pooling

One of the main novelties of Law 14,596/2023 versus the legacy regime — which was silent on the matter and litigation-prone — is the explicit treatment of financial transactions between related parties.

Loans

The interest rate on an intragroup loan must be arm's length — consistent with what independent parties would agree, given the borrower's credit rating, term, currency and guarantees. A spread over a reference rate needs support; replicating the parent's internal rate is not enough.

Debt or equity?

The authority may recharacterize a purported loan as a capital contribution where the economic substance shows an independent party would not have extended that financing on those terms (indefinite maturity, no guarantees, dependence on the borrower's results). The consequence is direct: the "interest" ceases to be deductible.

Guarantees and cash pooling

Intragroup guarantees may require a guarantee fee reflecting the credit benefit transferred; in cash pooling, the benefits of centralized treasury must be shared among participants according to their contribution, not concentrated in the leader entity.

The three types of adjustment — and why the secondary one was dropped

Where the terms of a controlled transaction do not observe the arm's length principle, the IRPJ and CSLL tax base is adjusted. Article 17 of Law 14,596/2023 provides three types of adjustment:

• Spontaneous adjustment: made by the Brazilian entity itself, directly in the IRPJ/CSLL computation, before any assessment.
• Compensatory adjustment: made by the parties to the controlled transaction by year-end, aligning the conditions to arm's length.
• Primary adjustment: made by the tax authority when the terms did not observe arm's length — with a penalty and interest.

The secondary adjustment was dropped

Provisional Measure 1.152/2022 contemplated a secondary adjustment: treating the difference found in the primary adjustment as a deemed transfer (for example, a constructive loan bearing interest, or a deemed dividend distribution). On conversion into law, this mechanism was removed — a meaningful reduction in litigation exposure. The TP adjustment corrects the tax base, but does not create that additional fiction of a transfer.

Documentation requirements

Local File (mandatory for all)

Detailed documentation of the Brazilian entity's intercompany transactions: business description, organizational structure, intercompany transaction overview (with FAR analysis per transaction), method selection and justification, comparable benchmark with statistical analysis, conclusion on arm's length compliance, financial information of the Brazilian entity.

The Local File scales with transaction complexity and entity size. For mid-sized operations under IN RFB 2,161/2023, a simplified Local File is permitted — focused on the material transactions and key comparables rather than full enterprise-grade documentation.

Master File (mandatory above €750M consolidated group revenue)

Group-level documentation: organizational structure, description of business and intangibles, intercompany financial activities, financial and tax positions. Filed at the country of the ultimate parent and shared with relevant jurisdictions through Country-by-Country reporting.

Country-by-Country Report (CbCR — mandatory above €750M)

Annual jurisdictional breakdown of revenue, profit, tax paid, employees, tangible assets, and stated capital for each entity in the group. Filed at the parent jurisdiction and exchanged with Brazilian tax authority under information exchange treaties.

Penalties for inadequate documentation

Inadequate Transfer Pricing documentation under the new regime carries enforceable penalties:

• 0.2% of revenue for late or absent submission of TP-related reports (capped at R$5 million per fiscal year).
• 3% of the transaction value for transactions without adequate Local File documentation.
• Standard tax penalties on any TP adjustment imposed by the tax authority: a 75% penalty on the assessed tax, increased to 100% in cases of fraud or collusion, and 150% only in cases of recidivism (Article 44 of Law 9,430/1996, as amended by Law 14,689/2023), plus SELIC interest.

Compared to the fixed-margin regime, the new framework increases compliance burden but decreases assessment risk for compliant taxpayers — the OECD methods, when applied with quality benchmark data, hold up in audit and dispute. Companies that invest in quality documentation reduce exposure materially.

Legal certainty: the advance pricing consultation (APA)

To reduce uncertainty and litigation risk, Article 38 of Law 14,596/2023 allows the Brazilian Federal Revenue to establish a specific consultation procedure on the Transfer Pricing methodology applicable to future controlled transactions — the Brazilian equivalent of a unilateral Advance Pricing Agreement (APA).

In the consultation, the company submits the method, comparables, adjustments and critical assumptions in advance; once approved, it provides predictability over the tax treatment for a fixed period — before the transaction occurs. The regulation falls to the Federal Revenue, effective from 1 January 2025.

TP litigation: what changes at CARF

The change of regime shifts the very axis of the dispute. Under Law 9.430/1996, litigation at CARF (the Administrative Tax Appeals Council) was essentially arithmetic and formal: which method applies, how the fixed margin is computed, what enters the practiced price.

The epicenter of the legacy dispute was the PRL method and the mechanics of Normative Instruction SRF 243/2002: CARF upheld its validity through Binding Precedent (Súmula) CARF No. 115, while the Superior Court of Justice (STJ), in 2022, held the IN 243/02 proportionalization method unlawful — a divergence that pushes taxpayers toward the courts. In commodities, the dispute centered on PECEX classification.

Why there is no case law yet under Law 14,596

The arm's length regime has been mandatory since fiscal year 2024, and the first assessments are only entering the audit cycle. As of June 2026, there are no CARF decisions applying Law 14,596 to the merits of an arm's length adjustment — the entire available body of precedent is from the old regime. The new litigation will turn on economic substance, the allocation of functions and risks, and the quality of the Local File — no longer on catalog margins. This is why documentation has shifted from formality to the primary line of defense.

Transfer Pricing by sector: where the risk lives

The applicable method and the points of greatest exposure vary by sector and business model. The functional analysis is always specific, but some patterns recur:

How TaxUp works on Transfer Pricing

Phase 1 — Diagnostic and gap assessment

Review existing TP documentation (if any), identify intercompany flows requiring documentation, map related-party relationships, assess prior-period exposure under the new regime, define documentation priorities.

Phase 2 — FAR analysis and method selection

For each material intercompany transaction, develop functional analysis (functions performed, assets used, risks assumed by each party), assess comparability with potential reference transactions, select the most appropriate method with documented justification.

Phase 3 — Benchmark and Local File drafting

Build comparable datasets using recognized databases (Orbis, RoyaltyStat, EdgarPro, etc.), perform statistical analysis (interquartile range), draft Local File in Portuguese (with optional English version for headquarters review), prepare Master File if group exceeds €750M.

Phase 4 — Audit support and maintenance

Annual documentation updates, audit defense if Brazilian tax authority opens inspection, mutual agreement procedure (MAP) support if double taxation arises, ongoing intercompany pricing reviews as group structure evolves.

The lead consultant conducts each engagement directly — no junior associates between the client and the analytical work. For groups with operations in multiple jurisdictions, we coordinate with foreign counsel under OECD standard methodology.