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Transfer pricing in Brazil: the 2024 arm's length regime

Last verified: 2026-10-25

Since 1 January 2024 Brazil applies the arm's length principle under Law 14,596/2023, replacing its old fixed margin system and aligning with the OECD approach. Controlled transactions between related parties must follow terms that unrelated parties would agree, using the most appropriate of five methods or another method. Documentation failures carry penalties from BRL 20,000 to BRL 5 million.

The rule

1. Terms and conditions of a controlled transaction must be those that would be set between unrelated parties in comparable transactions.Law 14,596/2023, art. 2, 2023-06-14 official text

2. A controlled transaction is any commercial or financial relation between two or more related parties, direct or indirect, including any contract, arrangement or series of transactions.Law 14,596/2023, art. 3, 2023-06-14 official text

3. The most appropriate method is selected among: comparable uncontrolled price (PIC), resale price minus profit (PRL), cost plus (MCL), transactional net margin (MLT), profit split (MDL), and other methods.Law 14,596/2023, art. 11, 2023-06-14 official text

4. Documentation failures are penalized: 0.2% of gross revenue per month for late filing; 5% of the transaction or 0.2% of group consolidated revenue for inaccurate returns; 3% of gross revenue for filings that do not meet requirements; and 5% of the transaction for failing to produce documents in an audit. Each fine is at least BRL 20,000 and at most BRL 5,000,000.Law 14,596/2023, art. 35, 2023-06-14 official text

5. The law applies from 1 January 2024; taxpayers could irrevocably opt to apply it from 1 January 2023.Law 14,596/2023, arts. 45 and 47, 2023-06-14 official text

6. Transfer pricing rules also apply to transactions with any party, related or not, in a jurisdiction that does not tax income or taxes it at a maximum rate below 17%.Law 9,430/1996, as amended by Law 14,596/2023, art. 24, 2023-06-14 official text

Worked example

A company with BRL 100,000,000 of gross revenue files its transfer pricing return three months late. The fine is 0.2% per month: BRL 600,000 (about USD 119,102), within the BRL 20,000 (about USD 3,970) floor and BRL 5,000,000 (about USD 992,516) cap. USD at the BCB PTAX selling rate of 23 October 2026, BRL 5.0377 per USD.

Step by step

Map all controlled transactions, including financing, guarantees, intangibles, services and business restructurings.
Prepare functional and comparability analyses and choose the most appropriate method.
Align intercompany agreements with actual conduct; the law delineates transactions on substance.
Prepare the documentation required by the Receita Federal on time.
Consider an advance consultation for complex transactions.

Common traps

Relying on old fixed margin safe harbors from Law 9,430/1996, which were revoked from 2024.
Overlooking that transactions with unrelated parties in low tax jurisdictions are also covered.
Treating intragroup services and cost sharing as outside transfer pricing.

Sources

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