The transfer pricing rules in Brazil depart from international norms in significant areas.

“The concept of related parties is broader than in other countries,” said Luís Farinelli of Machado Associados speaking at a Lataxnet event in New York. “We also do not have corresponding adjustments in our rules and this was the reason Germany ended treaty negotiations with Brazil.”

“Brazil is a problem,” said Federico Araujo of Torres Plaz & Araujo in Venezuela, who chaired the panel discussing transfer pricing. “It’s the most traumatic situation we have seen [in Latin America] doctrine-wise.”

In other countries in the region, where it is stated the OECD principles, including the arm’s-length standard are followed, practice causes the problem.

“Chilean rules supposedly follow the OECD model,” said Jorge Espinosa of Espinosa, Porte & Canales. “But, to be honest, we don’t really follow them, we have a Chilean flavour of them. The burden of proof is on the authorities and we have no annual reporting regulations.

The situation in Chile is set to change, however. The country is on the brink of becoming an OECD member state and must therefore bring its rules into line with the organisation’s rules.

“The government will present a Bill to modify the rules soon,” said Espinosa.

Permanent establishment is a tricky issue around the region.

“People in the US [and elsewhere in the world] are always surprised permanent establishment is an important concept beyond treaties and Latin Americans are always shocked to learn permanent establishment is only a treaty concept,” said Peter Byrne, an independent tax attorney working in Washington, DC and Lima, Peru.

In Mexico, the time taken to create a permanent establishment is six months, which is half the time allowed under the OCED rules. This decreased time can cause problems for taxpayers when structuring investments in the country.