Transfer Pricing Methods – TaxUp Consultoria Tributária

Transfer pricing is the set of tax rules governing transactions between related parties in different jurisdictions. The goal: ensure intercompany transactions are priced as if they occurred between independent parties in comparable circumstances (the OECD arm’s length principle). In Brazil, it is regulated by Law 14.596/2023 (in force since January 1, 2024), bringing full alignment with the international standard after 28 years of a fixed-margin regime.

Why transfer pricing exists

Without regulation, multinationals could manipulate intercompany prices to concentrate profit in low-tax jurisdictions. Example: a Brazilian subsidiary sells to the parent in the Netherlands for BRL 50 (cost + 5% margin), while the parent resells to third parties for BRL 100 (a real margin of 100%). Result: 95% of the profit stays in the Netherlands (low rate), only 5% in Brazil (high rate).

Transfer pricing exists to prevent this manipulation. It ensures each jurisdiction captures a fair share of the profit — proportional to the functions, assets and risks of the local operation.

History in Brazil

1996-2023: Brazil’s own regime (Law 9.430/96), based on fixed margins defined by law (PIC, PRL, CPL, PVL, PCI, PVA). Example: export of goods via the PVL method with a fixed margin of 15%, regardless of whether the real market margin was 8% or 25%.

2023: Law 14.596/2023 (originating from Provisional Measure 1.152/2022) revokes the fixed-margin regime and adopts the full OECD standard — arm’s length principle, 5 OECD methods, FAR functional analysis, benchmarking of comparables.

2024 onward: Brazil is in full compliance with the OECD standard. Brazilian companies with cross-border operations need to adapt their processes and documentation.

Covered transactions

Import and export of goods between related parties
Import and export of services (technical, administrative, financial, IT)
Royalties and licenses of intangibles (trademarks, patents, software, know-how)
Intercompany financial transactions (loans, cash pooling, intragroup guarantees)
Cost sharing arrangements and contributions to shared costs
Corporate reorganizations with cross-border impact (assignment of intangibles, transfer of functions)

Consequences of non-compliance

Companies that fail to comply with transfer pricing regulation face:

Ex officio adjustment by the Federal Revenue Service — prices recalculated by the method chosen by the tax authority, generally unfavorable to the taxpayer
Additional IRPJ + CSLL on the adjustment — a combined rate of 34%
Ex officio penalty of 75% to 150% on the tax (Law 9.430/96)
Selic interest on tax + penalty, retroactive to the date of the taxable event
Specific penalties for breach of ancillary obligations (0.2% to 3% of revenue)

In intercompany transactions of BRL 30M+, total exposure can easily exceed BRL 5M-15M in cases of a material adjustment.

References and official sources

Transfer Pricing diagnosis — free

An analysis of whether your company is subject to the regulation, a mapping of the covered intercompany transactions, and a compliance proposal scaled to your size.

Book a diagnostic

Frequently asked questions

What is the arm’s length principle?

Arm’s length (or full competition) is the fundamental principle of OECD transfer pricing: transactions between related parties must be priced as if they were between independent parties in comparable circumstances. It is codified in art. 9 of the OECD Model Convention and was fully adopted in Brazil by Law 14.596/2023.

What are the 5 OECD transfer pricing methods?

CUP (Comparable Uncontrolled Price), RPM (Resale Price Method), CPM (Cost Plus Method), TNMM (Transactional Net Margin Method) and PSM (Profit Split Method). The choice depends on the nature of the transaction, the available comparables and the functional position of the tested entity.

Is a Brazilian subsidiary of a US parent subject to transfer pricing?

Yes, in all cross-border intercompany transactions — import of goods from the parent, royalty paid to the parent, services received, intragroup loans, cost sharing. The Local File documentation must reflect all these transactions with FAR analysis and justification of the OECD method.

Does Brazil still use fixed margins (PIC, PRL, CPL)?

No, not for transactions occurring from January 1, 2024 (with the possibility of early adoption for 2023). Law 14.596/2023 revoked the fixed-margin regime. Transactions from 2024 onward must use the 5 OECD methods with functional analysis and benchmarking of comparables.

Back to Transfer Pricing

TECHNICAL AUTHORSHIP

TaxUp Tax Practice

Brazilian Tax Law

Content produced by the TaxUp technical team and reviewed by a senior consultant before publication. Meet the firm →