BRAZIL: An Introduction to Tax Non-contentious: The Elite

Transfer Pricing, IBS and CBS: A New Risk Zone

Brazil adopted the OECD model for transfer pricing rules (the “OECD Transfer Pricing Guidelines”) in 2023. The legislation implementing this change is new (Law 14,596/23) – mandatory since 2024 – and remains only partly regulated by the tax authorities. As a result, entire chapters remain subject to doubts, including significant areas dealing with financial transactions between related parties, loans, guarantees and cash pooling.

At the same time, Brazil is undergoing a major reform of its consumption tax framework. The following taxes are being phased out:

• imposto sobre circulação de mercadorias e serviços (ICMS) – a state-level tax on the circulation of goods and certain services;
• imposto sobre produtos industrializados (IPI) – a federal tax on manufactured products;
• programa de integração social (PIS) – a federal social contribution levied on revenue;
• contribuição para o financiamento da seguridade social (Cofins) –; another federal social contribution to fund social security; and
• imposto sobre serviços (ISS) – a municipal tax on services.

They will be replaced by just two taxes in a model that is closer to the European VAT system:

• imposto sobre bens e serviços (IBS) – a consumption tax on goods and services shared by states and municipalities; and
• contribuição sobre bens e serviços (CBS) – a federal value-added tax on goods and service.

The challenge lies not only in learning the new rules of these taxes, but in harmonising systems with different underlying logics. Transfer pricing looks at profit and requires arm’s length pricing. IBS and CBS look at the value of the transaction and the taxation of consumption.

In intragroup transactions, this difference may generate tension. The price accepted for Brazilian corporate tax purposes may not match the tax base for IBS and CBS. Subsequent transfer pricing adjustments may not align with VAT documentation, input credits and output debits. The tax authorities, in turn, are likely to cross-check data and look for economic coherence.

In this context, Brazilian tax professionals must interpret the rules, document their choices and live with the risk of potential challenge, whether due to the limited regulatory certainty around Law 14,596/23 or in view of the complexities of harmonising these provisions with the new IBS and CBS regime.