The Brazilian Transfer Pricing (TP) rules, imposed on imports and exports of goods, services and rights carried out between related parties, were enacted back in 1996, based on a controversial and simplistic “arm’s length” methodology involving fixed profit margins and flexibility for taxpayers to choose the most appropriate calculation method for the parameter price. These rules have not been subject to major updates since then and have somehow deviated throughout the years from the TP Guidelines introduced by the Organization for Economic Cooperation and Development (OECD).
In view of the recent developments caused by the COVID-19 crisis, and according to the postponement of the payment of certain taxes, the Brazilian Federal Revenue, published rules providing for the extension of the date of delivery of some ancillary obligations. Thus, for individuals, the date of delivery of the Annual income tax form was extended by two months; and, for legal entities, the delivery of the monthly ancillary obligations DCTF and EFD Contributions were also extended.
Due to the crisis caused by COVID-19, the Federal Government has published a series of measures with the aim of relieving the financial difficulties faced by companies regarding the slowdown in the economy caused by social isolation. Among these measures is the exemption of tax obligations, with the exemption or reduction of tax rates. Among these exemptions, it is worth highlighting the IOF-Credit and Contributions due to third parties (also known as contributions to the S System).
The FGTS is a contribution payed by employers to finance the Fundo de Garantia sobre Tempo de Serviço, which can be translated as a Public Guarantee Fund to workers to be used in exceptional cases, such as the firing of an employee. According to Provisional Measure No. 927 of March 22, 2020 (accessible here), it is suspended the collection of FGTS by employers regarding the competencies of March, April and May 2020, which will not depend on: (i) the number of employees, (ii) the tax regime, (iii) the legal nature, (iv) the branch of economic activity, and (v) prior membership.
The current health crisis caused by COVID-19 (coronavirus) has generated a strong impact on the business sphere and with important legal consequences from a tax point of view, which requires individualized treatment and a multidisciplinary perspective. As part of Garrigues' promise of value, which is to provide permanent and comprehensive support to its customers through a highly specialized and multidisciplinary team dedicated to identify potential risks and mitigate their consequences, we have developed this document containing some recommendations and relevant aspects that should be considered in the current conjuncture.