Linkedin Instagram


  • 5 January 2023

MP 1,152 changes the tax treatment of royalties

Provisional Measure No. 1,152 (“MP 1,152’), which aligns Brazilian transfer pricing rules with OECD guidelines (Organisation for Economic Co-operation and Development), proposes important changes in relation to the tax treatment applicable to royalties and technical, scientific, administrative, or similar assistance services paid by Brazilian legal entities.

According to the legislation currently in force, the tax deductibility of royalties paid to abroad is subject to specific limitation rules, reason why the current transfer pricing rules do not apply to these transactions, even if carried out between related parties.

MP 1,152 alters the tax treatment applicable to these transactions by introducing provisions determining that transactions with intangibles carried out between related parties would be subject to test under the new transfer pricing rules, including the ones involving the payment of royalties and technical, scientific, administrative, or similar assistance services.

Consistently, it also revokes the rules providing for specific deductibility limitations, such as:

  • The maximum deductibility limit of 5% of the gross revenue related to products manufactured or sold using the trademark, patent, technical assistance etc. (Art. 74 of Law No. 3470/58 and Art. 12 of Law No. 4131/62 and related ones); and
  • The impossibility of deducting expenses with royalties and technical assistance services when paid by a Brazilian branch to a parent company abroad, by a Brazilian subsidiary to a direct or indirect parent company abroad, to partners and directors, as well as other related limitations (Art. 52 and Art. 71, paragraphs “d” to “g” of Law No. 4.506/62).

The MP also provides for important restrictions on the deductibility of these payments:

  • To entities resident or domiciled in low tax jurisdictions or that benefit from privileged tax regimes; and
  • ​​​​​​​To related parties, when the deduction of the corresponding amounts results in double non-taxation (i.e.: when the amount deducted is treated as a deductible expense also by the other related party or is not treated as taxable income by the beneficiary under the legislation of its jurisdiction, or if the amounts are intended to finance, directly or indirectly, deductible expenses of related parties resulting in the previous hypotheses).

MP 1,152 will entry into force on January 01, 2024 (subject to conversion into law), with an irreversible option for taxpayers to already apply its provisions as from January 01, 2023 onwards.

​The content of MP 1,152 will be discussed by both Brazilian federal legislative houses (Chamber of Deputies and Senate) during the first semester of 2023 and may be significantly changed.

Lefosse’s Tax Team closely monitors the changes that impact the Brazilian market. For further clarification on this matter, or others that may be of interest to you, contact our professionals.

Tem alguma dúvida? Entre em contato com a nossa equipe marketing@lefosse.com



Subscribe to our newsletters

Sign up