[World Tax News] Brazil Finalizes Guidelines for Upcoming Transfer Pricing Regime and More

Editorial Team – [2023] 155 taxmann.com 102 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Brazil finalizes guidelines for upcoming transfer pricing regime

Brazil’s Federal Revenue Department (RFB) recently released Normative Instruction RFB No. 2161 dated 28 September 2023. This directive serves to govern the new transfer pricing system within the country.

As previously outlined, Brazil’s updated transfer pricing framework was introduced through Provisional Measure No. 1.152 on 28 December 2022 and later solidified into law under Law No. 14.596 on 14 June 2023. This new legislation explicitly integrates the arm’s length principle, aligning with OECD standards, into the Brazilian legal framework. The commencement of this updated regime is slated for 2024, though taxpayers have the option to opt for its application in 2023 as well.

The Normative Instruction encompasses the following key areas:

• General regulations encompassing the arm’s length principle, controlled transactions, related parties, and more.
• Implementing the arm’s length principle involves structuring controlled transactions, conducting comparability analysis, utilizing transfer pricing methods, and so on.
• Streamlined approaches, particularly for low value-added intragroup services.
• Stipulations for documentation, such as Master and Local file prerequisites.
• The opportunity to adopt the transfer pricing framework for the year 2023.

Regarding documentation, it’s specified that a Master file (“comprehensive repository”) and Local file should be electronically submitted using a service accessible on the RFB’s Virtual Service Center Portal (e-CAC Portal) within three months following the annual return deadline for the respective calendar year.

For the 2024 calendar year, the deadline for submitting the Master and Local files is the last working day of the 2025 calendar year. If the decision is made to implement the new transfer pricing regime for 2023, the deadline for the Master File and Local File for 2023 is the last working day of the 2024 calendar year.

Further, the instruction includes various aspects like the requirement to prepare local files and master files (provisions governing such preparation, nature of transactions, penalties and fines in case of failure etc.).

Source: Normative Instruction No. 2161

2. France releases Finance Bill 2024, introduces measures for Pillar 2 Global Minimum Tax

The Finance Bill 2024 has been released by the French National Assembly. A pivotal aspect of this bill involves the incorporation of Council Directive (EU) 2022/2523 dated 14 December 2022, aimed at implementing the global minimum tax under Pillar 2.

This encompasses the integration of the Pillar 2 income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR), designed to enforce a minimum tax rate of 15% for multinational enterprise (MNE) groups with annual consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years.

Furthermore, the Finance Bill introduces a qualified domestic minimum top-up tax (QDMTT) for members of groups falling within the scope, referred to as a complementary national tax by France. These regulations are generally slated to be effective for financial periods commencing on or after 31 December 2023, with the UTPR set to apply for financial periods starting on or after 31 December 2024.

Another aspect covered under 2024 French Bill was tax credit for the green industry. A fresh tax credit has been introduced for investments in the ‘green industry’ that supports the advancement of crucial sectors, promoting the shift towards a low-carbon economy. These sectors encompass the production of batteries, solar panels, wind turbines, and heat pumps. The tax credit is applicable to investment plans approved by no later than 31 December 2025. It features a standard tax credit rate of 20%.

However, higher rates of 25% and 40% are applicable for investments in specific regional aid and investment assistance zones. Additionally, qualifying medium-sized enterprises receive an extra 10%, and qualifying small enterprises receive an additional 20% tax credit.

Source: Finance Bill 2024

3. Cyprus Gears Up for Draft Law on Pillar 2 Global Minimum Tax

The Cyprus Ministry of Finance has announced the completion of the draft legislation to implement the Pillar 2 global minimum tax, aligning with Council Directive (EU) 2022/2523 dated 14 December 2022. This entails the incorporation of the Pillar 2 Income Inclusion Rule (IIR) and the UndertaxedPayment/Profit Rule (UTPR), ensuring a minimum tax rate of 15% for multinational enterprise (MNE) groups with an annual consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years.

Additionally, the draft legislation includes introducing a qualified domestic minimum top-up tax (QDMTT) for members falling within the scope, referred to as the suitable domestic supplementary tax by Cyprus. The draft law is slated to come into effect on 31 December 2023. It will apply to financial years commencing from 31 December 2023, except for the UTPR, which will take effect for financial years beginning from 31 December 2024.