Watson M. McLeish Watson M. McLeish
Senior Vice President, Tax Policy
Renata Brandão Vasconcellos Renata Brandão Vasconcellos
Executive Director, Americas, U.S. Chamber of Commerce


August 23, 2023


Responding to advocacy from the Chamber and its Brazil–U.S. Business Council (BUSBC), the U.S. Treasury Department and IRS recently provided taxpayers with welcome, temporary relief from some of the harshest aspects of the 2022 final foreign tax credit regulations—including the restrictive cost recovery and attribution requirements. This temporary reprieve from the 2022 regulations’ attribution requirement, of which the controversial new arm’s length requirement is a component, likely allows U.S. taxpayers to claim the foreign tax credit for income taxes paid to Brazil in 2022 and 2023. Treasury and the IRS also indicated that they may extend this relief to future years as they study the issue further. 

Months of Advocacy: As part of sustained, bilateral advocacy efforts on this issue, the Chamber and BUSBC in December issued a letter to Treasury seeking the immediate withdrawal, suspension, or modification of the new arm’s length requirement in the 2022 regulations. The letter explained how the new requirement, reportedly issued to address foreign countries’ adoption of novel digital services taxes (DSTs), was unjustifiably overbroad and punitive in its effects, especially as applied to Brazil’s historically creditable corporate income tax. In sum, we argued that the new requirement threatened the commercial viability of U.S. foreign direct investment in Brazil—an untenable result. 

The December letter reiterated and expanded on our previous comments that imposing the new arm’s length requirement was neither a necessary nor an appropriate way for Treasury to address its stated concerns about the proliferation of unilateral DSTs. Several months earlier, the Chamber had joined 18 other stakeholder organizations in highlighting four gravely problematic aspects of the 2022 regulations that warranted their withdrawal and reconsideration by Treasury. 

Giving the Competition a Leg Up: A prolonged failure by Treasury and the IRS to address these concerns with the 2022 regulations would have placed U.S. companies doing business in Brazil at a material tax disadvantage relative to their non-U.S. competitors.As we pointed out in December, “American-headquartered companies with longstanding operations in Brazil, which is the United States’ 14th largest goods trading partner and the largest economy in the world for which no U.S. tax treaty benefits apply, are now materially disadvantaged relative to their foreign-headquartered competitors that do not face unmitigated double taxation of their Brazilian-source income.” Something had to give, and we commend Treasury and the IRS on their constructive response. 

Advocacy in Two Capitals: Beyond our repeated calls for Treasury and the IRS to reconsider the harshest aspects of the 2022 regulations, the Chamber and BUSBC engaged directly with the former Brazilian Ministry of Economy and the current the Ministry of Development, Industry, Commerce and Services to align Brazil’s transfer pricing legislation with international taxing norms by adopting the arm’s length standard. In this regard, Brazil’s campaign to accede to the Organisation for Economic Co-operation and Development (OECD) proved to be a key pressure point for the country to finally change its transfer pricing rules. On June 14, the new law on transfer pricing was published in Brazil (Law No. Nº 14.596/2023). And one month later, our concerted campaign to preserve the commercial viability of U.S. companies doing business in Brazil bore fruit domestically, with Treasury and the IRS answering taxpayers’ calls for relief. 

About the authors

Watson M. McLeish

Watson M. McLeish

Watson McLeish is senior vice president for Tax Policy at the U.S. Chamber of Commerce, where he serves as the primary adviser on all tax policy-related matters.

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Renata Brandão Vasconcellos

Renata Brandão Vasconcellos

Renata Brandão Vasconcellos iis the former Executive Director, Americas at the U.S. Chamber of Commerce. She leads the US-Cuba Business Council and is also responsible for most of the policy agendas of the Brazil-US Business Council.