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Documentation and reporting

Rules and procedures

What rules and procedures govern the preparation and filing of transfer pricing documentation (including submission deadlines or timeframes)?

Taxpayers must prepare the documentation relating to the controlled transactions undertaken and the observance of the transfer pricing methods annually. In addition, corporate taxpayers must declare in their annual income tax returns the transactions undertaken with related parties and the adopted transfer pricing method for the relevant taxable period.

The documentation supporting the transfer pricing method used and the calculation charts used for the assessment of the parameter price must be presented to the tax authorities in the event of a tax inspection in order to prove its compliance with the transfer pricing rules, according to the methods adopted by the taxpayers.

Taxpayers should keep documentation related transfer pricing control for five years, as the tax authorities have five years to review the transfer price adopted by the taxpayer and implement adjustments in order to claim any corporate income tax due.

Content requirements

What content requirements apply to transfer pricing documentation? Are master-file/local-file and country-by-country reporting required?

Taxpayers should keep documentation related to transfer pricing control for five years, as the tax authorities have five years to review the transfer price adopted by the taxpayer and implement adjustments in order to claim any corporate income tax due. The documentation must be presented to the tax authorities in the event of a tax inspection.

Normative Ruling 1,681/2016 requires the filing of country-by-country reporting by the final holding company of a multinational group resident for tax purposes in Brazil and whose economic group has earned consolidated revenues higher than R2.26 billion or €750 million in the fiscal year before the fiscal year of the report.

Through the country-by-country reporting the Federal Revenue Service will gain access to information aggregated by each jurisdiction in which the multinational group operates, comprising consolidated revenues and segregating those obtained in transactions with related and unrelated parties.

No master-file or local-file requirements apply.

Penalties

What are the penalties for non-compliance with documentation and reporting requirements?

If the documentation presented by the taxpayer in a tax inspection is deemed inadequate or insufficient by the tax authorities to evidence the calculation of the price of the transactions analysed, the tax authorities can determine the transfer price by applying another method, based on the documentation and information made available by the taxpayer.

Non-compliance with the documentation and reporting requirements may also lead to the imposition of penalties, in addition to those applied in the case of a tax assessment intended to collect corporate income tax derived from transfer price adjustments, where the tax authorities will charge the taxes due plus a penalty of 75% and interest calculated by the Selic rate. In case of sham, fraud or misconduct (unusual in transfer pricing matters), a penalty of 150% is applied.

Transfer price adjustments may also lead to the imposition of a 50% penalty in the event of the underpayment of corporate income tax monthly estimates by the taxpayer.

According to the applicable legislation, any mistake, inaccuracy or omission in the corporate annual income tax return will be subject to a penalty of 3% of the incorrect, inaccurate or omitted value. The penalty will not be due if the taxpayer corrects the mistake, inaccuracy or omission before the tax authorities begin the inspection, and the penalty will be reduced by 50% if the mistake, inaccuracy or omission is corrected within the term established by the tax authorities.

Best practices

What best practices should be considered when compiling and maintaining transfer pricing documentation (eg, in terms of risk assessment and audits)?

Taxpayers should keep documentation related to transfer pricing control for five years, as the tax authorities have five years to review the transfer price adopted by the taxpayer and implement adjustments in order to claim any corporate income tax due.

The documentation that supported the transfer price used and the calculation charts used for the assessment of the parameter price must be presented to tax authorities in the event of a tax inspection in order to prove compliance with the transfer pricing rules, according to the methods indicated by the taxpayer on the annual income tax return.

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