Transfer Pricing Documentation in Brazil: Deadlines and Penalties

A Brazilian company with controlled transactions abroad must keep supporting documentation and, from BRL 15 million in controlled transactions in the prior year, file the Local File (Arquivo Local) and the Global File (Arquivo Global) through the e-CAC portal, within 3 months after the ECF deadline. Large groups also file the Country-by-Country Report (Law 14,596/2023 and IN RFB 2,161/2023).

What transfer pricing documentation obligations exist today?

Law No. 14,596/2023 (Lei 14.596/2023) applies to corporate income tax (IRPJ) and the social contribution on net profit (CSLL) of legal entities domiciled in Brazil that carry out controlled transactions with related parties abroad (art. 1). Art. 34 requires the taxpayer to document and prove that the tax base respects the arm's length principle. Normative Instruction RFB 2.161/2023 (IN RFB 2.161/2023) details how.

The calculation methods, arm's length and the case of those with an offshore company are in the transfer pricing guide for offshore companies. Here the focus is what to file, when and at what risk.

Below, "the Receita" means Brazil's Federal Revenue Service (Receita Federal).

Who needs to file the Local File and the Global File?

It depends on the total value of controlled transactions, before transfer pricing adjustments, in the calendar year prior to the year of the file (IN 2,161, art. 57):

The waiver applies only to filing. Art. 62 still requires the taxpayer to organize and keep the supporting documents, and the tax authority may request them. Documents in another language need a simple translation, except those in English or Spanish, whose translation is only required if the authority asks for it.

What each file contains:

• •Global File (art. 58): group organization chart, description of the activities that generate the most profit, summary functional analysis, supply chain of the largest products or services, main service contracts between group entities and relevant restructuring operations.
• •Full Local File (art. 59): structure and activities of the taxpayer, identification of related parties and information on each controlled transaction, with value, counterparty country and context.
• •Simplified Local File (art. 61): entities involved, type and value of the transactions, methods used, comparables and ranges obtained, justification for the choice of method and the year's spontaneous and compensatory adjustments.

What is the filing deadline and how does the ECF come into it?

The Global File and the Local File are filed as a Digital Process, through the e-CAC, within 3 months after the ECF deadline for the corresponding calendar year (IN 2,161, art. 56). The Receita says the ECF is due on the last business day of July of the following year. In practice, this puts the filing of the files near the end of October. Confirm the exact date for each year on the Receita's calendar.

Part of the information in arts. 59 and 60 also goes in the ECF itself, according to the ECF Layout Guidance Manual (art. 56, § 1). The ECF figures and the files must tell the same story.

Art. 56, § 2, set a special deadline for the initial phase: for calendar year 2024, the deadline was the last business day of 2025. For calendar year 2023, for those who made the early election under art. 45 of Law 14,596, the deadline was the last business day of 2024.

Filing steps, according to the Receita's guide:

1. •Open a single process per calendar year in the e-CAC. Corrections and additions go in by attaching documents to the same process.
2. •Attach the Global File and the Local File in the proper fields.
3. •Use PDF, up to 15 megabytes per document. Spreadsheets that lose information in PDF go as non-paginable files, compressed in .zip.

When is the Country-by-Country Report mandatory?

IN RFB 1,681/2016 requires an entity resident in Brazil that is the ultimate parent of a multinational group to file the Country-by-Country Report (Declaração País-a-País) (art. 3). The Brazilian subsidiary also files it in the cases of art. 3, § 1, such as when the ultimate parent is not required to file it in its jurisdiction.

The report discloses the global allocation of revenues and assets, income tax paid and indicators of the group's economic activity. There is a waiver when the group's consolidated revenue in the prior year is below BRL 2.26 billion, if the ultimate parent is resident in Brazil, or below €750 million, if it is abroad (art. 4). The exempt entity must report its status to the Receita.

The report is filed in the ECF and follows the ECF deadline (arts. 5 and 6).

What penalties apply to those who fail to comply?

The penalties in IN 2,161, art. 66, repeat art. 35 of Law 14,596. All have a floor of BRL 20 thousand and a ceiling of BRL 5 million.

If the taxpayer does not report the group's consolidated revenue, or cannot prove it, the BRL 5 million ceiling applies to the Global File penalty. The 0.2% penalty on the group's revenue does not apply to proven formal errors or to immaterial information, that is, information that does not affect the reliability of the result (art. 66, §§ 4 and 5).

The risk goes beyond the penalty. If information needed to delineate the transaction or to compare is missing, the authority may allocate to the Brazilian entity functions, risks and assets without evidence that the counterparty assumed them, and adopt reasonable estimates (art. 65). This can raise taxable profit in Brazil.

Do the old rules still apply?

No. Law 14,596/2023 took effect on January 1, 2024 (art. 47). On that date, among others, arts. 18 to 23 of Law 9,430/1996 were repealed (art. 46). Taxpayers could opt for the new rules as early as January 1, 2023 (art. 45), and the election was irrevocable.

How do you organize a compliance calendar?

1. •Determine the total: add up the prior year's controlled transactions, before adjustments. The total defines whether there is a Local File and of what type.
2. •Keep records at the time: keep contracts, invoices, functional analyses and calculations organized as the transactions occur, as art. 62 requires. Register commodity contracts in the e-CAC by the 10th day of the month following signing.
3. •Close the ECF: include the transfer pricing information in the ECF and, if the group exceeds the threshold, the Country-by-Country Report.
4. •Send the files: within 3 months after the ECF deadline, in the e-CAC, in one process per calendar year.
5. •Review: check that the figures in the ECF, the files and the invoices match before sending.

To build this calendar with specialized support, see the international compliance service. To review the group structure that generates the transactions, see corporate structures and tax planning. Anyone still designing the operation can start with how to legally reduce taxes with offshore.