Cost Sharing Agreement Brazil

Cost-sharing arrangements are not defined in Brazilian transfer pricing rules and there are no tax provisions in this area. Only the case law, which deals mainly with cost-sharing agreements between two Brazilian companies, indicates how to guarantee the deductibility of these costs. First, it should be borne in mind that international cost-sharing agreements for non-essential activities in Brazil have always been a controversial issue, although this issue has never been properly addressed by local legislation. In 1996, TP controls were introduced in Brazil in order to put an end to commercial practices between related companies and persons under market conditions other than the “arm`s length principle”) and transactions with third parties established in tax havens[3]. Methods have thus been put in place to regulate the deduction of costs and expenses related to import operations and to define the minimum taxable revenues from exports. In a recent private and non-binding decision (#6.024 of 30 May 2017), the FRS concluded that remuneration paid by a Brazilian company under a cost-sharing agreement to a foreign related party was considered remuneration for technical services subject to services import and transfer pricing controls. The classification of payments under cost-sharing agreements as compensation for technical services not only entails a high tax burden for the transfer itself, but also entails other possible consequences for the Brazilian subsidiary/participation. Given that most cost-sharing agreements are concluded between parties considered to be related agreements under current Brazilian law[2], restrictions on the deductibility of shared costs/expenses, as provided for by Brazilian transfer pricing (“TP”) rules, are considered mandatory in the context of the SIP summary of reasons – a position with which I disagree, given that TP controls are not compatible with the nature and purpose of cost-sharing agreements. . .


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