The new Brazilian transfer pricing rules eliminated the limitation and prohibition of deductibility of the values paid as royalties and as technical, scientific and administrative assistance, by a Brazilian company to a foreign one.
The new legislation determines that the analysis of the deductibility of these expenses is now subject to transfer pricing rules. So, the deductibility will be restricted just to the amounts paid:
(i) to entities resident or domiciled in countries with favorable taxation rules or under privileged fiscal regimes; or
(ii) to related parties when the deductibility of the values results in double no-taxation.
These changes will cause fiscal implications to Brazilian companies, which can be positive or negative, depending on the specific situation.
The IRS must issue complementary legislation about this matter.
However, according to the new rules, the taxpayer can choose to adopt them in 2023.
The Tax Department at Castro Barros Advogados is available to provide any further clarification on this matter.