Transfer Pricing with an Offshore Company: 2026 Guide

Yes, a Brazilian company that transacts with an offshore company of the same group must apply the transfer pricing rules of Law 14,596/2023. The law has applied since January 1, 2024 to IRPJ and CSLL, requires a market-compatible price (the arm's length principle) and provides fines of 0.2% to 5% when documentation is missing or wrong.

When do transfer pricing rules apply to an offshore company?

Law 14,596/2023 (Lei 14.596/2023) applies to a legal entity domiciled in Brazil that carries out controlled transactions with related parties abroad (art. 1, sole paragraph). It affects the tax base of IRPJ (Brazilian corporate income tax) and CSLL (Social Contribution on Net Profit).

Two conditions must be present at the same time:

• •Related party: art. 4 considers parties related when at least one of them is subject to the influence, direct or indirect, of another, to the point of influencing the terms and conditions of the transaction.
• •Controlled transaction: payment of royalties, provision of services, a loan, the purchase and sale of goods or any operation between the Brazilian company and the related entity outside the country.

In practice, an operating company in Brazil that pays for a software license, a management service or interest to an LLC, holding company or company of the same group abroad falls within the scope of the law. The same applies to the sale of products or services to that entity.

The law does not regulate individuals. Someone who holds an offshore company as an individual follows other rules, such as the taxation of controlled entities abroad under Law 14,754/2023. For the general picture of transfer pricing in Brazil, see the guide to transfer pricing and international compliance.

What is the arm's length principle?

Art. 2 requires that the terms and conditions of a controlled transaction be the same as those that unrelated parties would establish in comparable transactions. In Portuguese, it is called the principle of "plena concorrência".

The question Brazil's Federal Revenue Service (Receita Federal) asks is simple: if the Brazilian company and the offshore company were independent, would the price, the royalty or the interest rate be the same? If the answer is no, the tax base of IRPJ and CSLL may be adjusted.

To answer it, art. 6 calls for two steps:

1. •Delineation of the transaction: identifying the actual commercial and financial relations between the parties, based on the facts and actual conduct, not only on what the contract says.
2. •Comparability analysis: comparing the transaction with operations between independent parties.

That is why a well-drafted contract is not enough. If the offshore company does not have people, decisions and risk control consistent with the remuneration it receives, the price can be challenged even with a signed contract.

What are the transfer pricing methods in Law 14,596?

Art. 11 lists five methods and requires choosing the one most appropriate to the case:

The OECD names (CUP, RPM, CPM, TNMM and PSM) have similar logic, but Brazilian law uses the acronyms above. In documents submitted to the Receita, use the law's nomenclature.

When the method produces a set of comparable results, the appropriate range is the interquartile range if there are comparability uncertainties that cannot be quantified and adjusted. The full range applies when the comparable transactions have an equivalent degree of comparability (art. 16).

How are royalties, services and interest treated with an offshore company?

The law addresses intangibles, services and debt operations in separate provisions. The three most common points in offshore structures are:

• •Royalties and intangibles: the law defines an intangible as an asset that is neither tangible nor financial and that can be held or controlled for use in commercial activities. Whoever receives royalties must show that it actually performs functions, uses assets and assumes risks connected to that intangible.
• •Intragroup services: the service must exist, benefit the Brazilian company and be remunerated at a market-compatible level. Charges without proof of performance are the first to be disallowed.
• •Loans: the interest rate between a Brazilian company and an offshore company must also be comparable to what independent parties would charge, considering term, guarantees and risk.

If the offshore company is an LLC, the choice of state matters for the structure, but it does not change the Brazilian rule. See the comparison Wyoming or Delaware LLC and, for those who sell software, the guide to LLCs for SaaS and software.

What documentation can the Receita require?

Art. 34 requires the taxpayer to submit documentation and information demonstrating compliance with the arm's length standard, including whatever is needed for the delineation and the comparability analysis. The law highlights four groups of information:

1. •the controlled transactions;
2. •the related parties involved;
3. •the structure and activities of the multinational group and its entities;
4. •the global allocation of revenues and assets and the income tax paid by the group, with indicators of global economic activity.

If the taxpayer does not provide what is needed for the delineation or the comparability, the tax authority may adopt the measures provided in § 1 of art. 34, such as attributing to the Brazilian entity functions and risks that the documentation does not explain. The format and deadlines of the declarations are defined by the Receita Federal.

What are the penalties for non-compliance?

Art. 35 provides penalties for failing to comply with art. 34. In summary:

The fines have a minimum of BRL 20,000 and a maximum of BRL 5,000,000 (art. 35, § 1). In addition to them, the price adjustment raises taxable profit and, with it, the IRPJ and CSLL due. Check the full text of the law before applying it to a specific case, because the calculation criteria have exceptions.

Is it possible to give the structure legal certainty?

The law provides two instruments:

• •Specific consultation (art. 38): the Receita may establish a consultation process on the methodology to use in future controlled transactions.
• •Mutual agreement procedure (art. 39): when there is a dispute resolution mechanism provided in an international agreement or convention against double taxation to which Brazil is a signatory.

Art. 17 defines two adjustments made by the taxpayer: the spontaneous one, which the Brazilian legal entity makes when determining the tax base of IRPJ and CSLL, and the compensatory one, made by the parties up to the close of the calendar year of the transaction. Correcting the price on your own is better than waiting for the audit adjustment.

Since when has Law 14,596 applied?

The law takes effect on January 1, 2024 (art. 47). Taxpayers could irrevocably opt to apply it as early as January 1, 2023 (art. 45). In 2026, therefore, all controlled transactions are under the new regime.

For the OECD view and the BEPS plan that inspires these rules, read BEPS and the OECD for Brazilians.