2023 Marcum Year-End Tax Guide

61

THE MARCUM YEAR-END TAX GUIDE 2023

Brazil’s Alignment with the OECD Transfer Pricing Guidelines As of June 15, 2023, Brazil’s legacy transfer pricing rules were replaced with ones drawn from the OECD Transfer Pricing Guidelines. Adopting the OECD-based rules will be mandatory as of January 1, 2024. However, Brazilian taxpayers can opt to apply the new rules as of January 1, 2023. Implementing the new rules will significantly impact the tax environment of the largest economy of the Latin American (“LATAM”) region. The alignment of the transfer pricing rules with the OECD Transfer Pricing Guidelines may alleviate concerns with issues such as double taxation while promoting Brazil’s economic growth through more efficient integration into global value chains, thereby enhancing trade with and investment in the country. Adopting the new transfer pricing rules will significantly impact taxpayers’ ability to claim foreign tax credits in the US for income taxes paid in Brazil. US Foreign Tax Credit (FTC) final regulations, released on December 28, 2021, implemented a new attribution requirement to the “net gain” condition for determining whether a foreign tax is creditable in the United States. In case of foreign tax imposed on residents of a jurisdiction, the FTC regulations

establish that a foreign tax will meet the attribution requirement solely when the allocation rules are followed in said tax jurisdiction and are consistent with the arm’s length principle (“ALP”) as stated in US transfer pricing regulations and OECD Transfer Pricing Guidelines. Canada In 2023, Canada’s Department of Finance released a consultation paper and accompanying legislative proposals that include changes to the Canadian transfer pricing rules, including amendments to the transfer pricing adjustment rule and possible revisions to certain administrative practices. The consultation paper, which includes a series of questions for public comment, emphasizes that these proposals aim to clarify the technical aspects of applying the arm’s length principle and better align the Canadian transfer pricing rules with international standards and transfer pricing guidance published by the OECD. Mexico Mexico has introduced new transfer pricing regulations, including significant changes to certain technical matters for taxpayers to consider when conducting a transfer pricing analysis.

• Article 76 (Section IX) of the Mexican Income Tax Law (“MITL”) requires taxpayers to include in their transfer pricing documentation all cross-border and domestic intercompany transactions. • As part of the functional analysis process, taxpayers must perform an analysis on a “dual basis,” meaning that the functions, assets, and risks of the entity that records the income and the counterparty that books the expense must be fully described in the report. • Taxpayers must file their transfer pricing information tax return (referred to as “DIM’s Appendix 9”) no later than May 15 of the following fiscal year. • Taxpayers must file the Local File return by May 15 of the following fiscal year. • Article 179 of the MITL clarifies that corporations and individuals must rely on the arm’s length principle when pricing-controlled transactions. The Netherlands In 2023, the Netherlands adopted a new transfer pricing decree, including new guidance on financial services companies. The goal is to align the Dutch more closely with the OECD transfer pricing guidelines on financial transactions 6 .

marcumllp.com