[ESTABLISHING A BUSINESS ENTITY IN BRAZIL] 74
(income from foreign trade or exported services is not considered foreign interest for these purposes); ( iii ) that enjoy tax benefits (exemption or reduction of income tax); ( iv ) that had made payments under the estimated system during the tax year. (b) Deemed Profit Regime. Under this regime, the calculation of taxes is simplified. First, the company must determine its basis, which corresponds to applying a statutory percentage to its gross revenues (32% for services, including the assignment of rights, and 8% for the sales of goods). The resulting amount is the basis which is subject to the tax rates. The rates are the same as in the Real Profits Regime, that is: ( i ) IRPJ of 15%, with an additional 10% on the profits that exceed BRL 20,000.00 per month (i.e., profits of BRL 240,000.00 per year are taxed at a 15% rate, and the exceeding amounts are taxed at a combined 25% rate); and ( ii ) CSLL of 9%. 6.3. Transfer Pricing rules: The Brazilian transfer pricing (TP) rules have been completely revamped. The pre-existing regime, based on the use of statutory fixed margins and a free election of TP method, was revoked and replaced by a transfer pricing legislation that was designed in conformity with the OECD Transfer Pricing Guidelines (TPG). The new system is mandatory as of January 2024 to all companies operating in Brazil, an also applies to unincorporated business presences and individuals. The new regime allowed early adoption in 2023 (with retroactive effects as of January 2023).
Following Brazil’s application for accession to the OECD, one of the main projects conducted for the alignment of the Brazilian tax system consisted in the complete substitution of the Brazilian TP rules by OECD and UN-style TP rules. Law 14,596 was published in 2023, and a regulation of the main topics was issued in September 2023. Further regulations are expected to be issued during the year 2024 for the clarification of important aspects concerning intangibles, financial transactions, business restructurings, etc. Under the new Brazilian TP rules, cross-border transactions carried out by Brazilian taxpayers with related parties abroad — including royalty payments — must comply with the arm’s length principle. Although Law 14,596/2023 makes no clear reference to the OECD and UN TP Guidelines, the normative instruction 2,161 mentions the TPG as means of interpretation. 6.4. Thin Capitalization Rules: In addition to the TP rules, Brazilian taxpayers must also comply with thin capitalization rules to assure the deductibility of in interest paid to foreign companies. Under the thin capitalization rules, interest paid to foreign related parties is deductible only if, cumulatively: (a) it consists of a necessary expense for the entity; and (b) the indebtedness with a related company does not exceed twice the related entity’s participation in the net worth of the Brazilian entity (or twice the company’s overall net worth if the lender holds no participation). In addition, the sum of all loans with foreign related parties must not exceed twice the value of the foreign
ILN Corporate Group – Establishing a Business Entity Series
Made with FlippingBook Ebook Creator