According to Andre Oliveira of CBSG Advogados, the OECD and BEPS are for the most part overlooked in the country’s own media but he said tax practitioners are avidly following the discussions through foreign sources.
“It is important to highlight a recent initiative that was organised by the Brazilian branch of the International Fiscal Association (IFA) at the Third International Congress of Tax Law in Rio de Janeiro where the subject of BEPS was addressed,” said Oliveira.
“At this stage, people are becoming interested and aware of the possible outcomes of the related discussions, including transfer pricing,” said Oliveira. “People are awaiting the results of BEPS discussions to understand how feasible any adjustment would be to Brazilian legislation and whether Brazilian tax authorities would accept them.”
The feeling among the Brazilian tax industry in relation to BEPS is generally positive with many supporting the OECD’s aim to create a more standardised approach for transfer pricing (TP). Brazil already follows, for the most part, the OECD Double Tax Convention model. Despite acknowledging the possible benefits of the OECD’s proposals, some believe that BEPS discussions are irrelevant to Brazil because the outcome and resulting rules will not be binding. “Since Brazil is not an OECD member, there is no impact in this matter and in any case the government has already started to look after profit shifting and base erosion by publishing new regulations and normative instructions to avoid those kinds of tax planning,” said Daniel Paulo Marques, direct tax manager, tax planning at Heineken in Brazil.
Country specific guidelines
Brazil’s TP guidelines are seen by many to be more objective and easier to use because the taxpayer is allowed to mathematically prove and determine their TP benchmark without having to search for comparables.
“I do not think that Brazil is prepared to change its transfer pricing rules, which translate the arm’s-length principle into an objective test. From a developing country perspective, it is a better system because it provides the taxpayer with certainty in the result. It also removes the need to search for comparables, thereby reducing subjectivity,” said Tatiana Falcão of IBFD.
As Brazil’s system is country-specific, it could also be argued that the Brazilian guidelines are more relevant and implementation of OECD guidelines would detract from this.
“Brazilian tax authorities will adopt rules that are most beneficial for the country. Nowadays, Brazilian rules differ from international ones. Whether any aspects of BEPS will be incorporated into the Brazilian system will depend on the analysis of the Brazilian tax authorities,” said Oliveira.
João Rolim of Rolim, Viotti & Leite Campos suggested that the interest generated over BEPS discussions is being treated as more of a case study for Brazilian tax authorities to see how they can improve their own guidelines and overcome current difficulties.
While Brazil could look to the OECD for ways to modify their own system, it is likely that they will stick to country specific rules. “The Brazilian TP system goes to show that options do exist, and that it is possible for countries to try to adapt the OECD TP rules to their own domestic practices and realities,” said Falcão. “It provides for a good starting point for other developing countries to approach transfer pricing and in that sense, it is worth sharing the Brazilian experience.”
While BEPS proposals are being openly discussed in Brazil and have received support, Felipe feels it is unlikely that Brazil’s TP system will change anytime soon.
“I believe that Brazilian taxpayers would possibly welcome OECD methods, but a discussion over OECD and Brazilian rules is unlikely to be on the agenda. Brazilian transfer pricing rules were reformed in 2012, becoming mandatorily effective as of 2013, and therefore, are unlikely to be reviewed in the near future,” said Luiz Felipe of Mattos Filhos.
Brazil’s TP future
Because Brazil is not obliged to abide by OECD guidelines, implementing any of the BEPS proposals is only likely to occur if there are obvious benefits for the country.
“I think that the tendency is for Brazil to evolve its own transfer pricing rules to better frame some issues which are still not properly addressed by its legislation, such as the pricing of intangibles. In doing so, it might perhaps come closer to an OECD approach. But I also think that there will be a counter-movement in the sense that the OECD will start being more accepting of “alternative” practices. It has already changed its approach towards safe harbours, which goes to show that they have, to some extent, been listening to countries’ requests for greater certainty,” said Falcão.
