The new law defines a “low tax jurisdiction” and expands the concept of a tax haven, using Ireland and Switzerland as examples. The amendment increases withholding taxes from 15% to 25% on all transactions with tax haven jurisdictions.

The changes indicated that Brazil would begin a strong enforcement initiative to audit related-party transactions of companies doing business with such tax havens. Brazil has warned companies that unless they carry out robust transfer pricing studies to validate the pricing strategies, it will reject their transfer pricing policies.

Brazilian transfer pricing rules have been in effect since 1997 and those rules deviate from the internationally accepted transfer pricing methodologies of the OECD Guidelines. The country also has few tax treaties in place, which increases the likelihood of double taxation.

The enforcement actions seen as a result of the amendment to the legislation include increases in numbers of transfer pricing audits, the size of the transfer pricing adjustments, and an increase in penalties.