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19.02.2018

Brazil: Changes to the list of tax - Havens and privileged tax

Regimes and on documentation related to taxes paid abroad

Key Facts
  • Normative Instruction of the Brazilian Federal Revenue Service ("IN RFB") 1773/17 introduced changes to IN RFB
  • Exclusion of Costa Rica, Madeira, and Singapore from the list of tax havens
  • IN RFB 1772/17: changes to INs RFB 213/02 and 1520/14 specifically in relation to the documentation related to taxes paid abroad
  • Legalization ("consularização") may be replaced by the apostille certificate provided under the Convention Abolishing the Requirement of Legalization for Foreign Public Documents (Decree 8660/16)
  • Changes on Law 13259/16 by Ruling 663 of December 27,2017
  • General Tax Coordination ("COSIT"): The legislation in force on the date of the taxable event determines the applicable tax treatment (Article 144 of the Brazilian Tax Code)

Normative Instruction of the Brazilian Federal Revenue Service ("IN RFB") 1773/17, published on December 26, 2017, which took eff ect as of January 1, 2018, introduced changes to IN RFB
1037/10, which lists the jurisdictions considered as tax havens and the regimes considered as privileged tax regimes, as follows:

  1. Exclusion of Costa Rica, Madeira, and Singapore from the list of tax havens; and
  2. Inclusion in the list of privileged tax regimes of:

(a) The Free Trade Zones of Costa Rica;
(b) The International Business Centre of Madeira; and
(c) Several regimes in place in Singapore.

In addition, IN RFB 1772/17, also published on December 26, 2017, introduced changes to INs RFB 213/02 and 1520/14 (taxation on profits earned abroad), specifically in relation to the
documentation related to taxes paid abroad.

For the purposes of offsetting taxes paid abroad levied on profits earned by directly or indirectly controlled companies, affiliate companies and/or branches, the Brazilian legal entity shall, in principle, submit the documents related to the payment of such taxes supported by the legalization ("consularização") process. According to IN RFB 1772/17, such legalization may be replaced by the apostille certificate provided under the Convention Abolishing the Requirement of Legalization for Foreign Public Documents (Decree 8660/16). 1 Such apostille documentation shall be affixed together with the official document of the tax authorities of the country where the tax was paid, and must be translated into Portuguese
(certified translation).

Capital gains earned by legal entities domiciled abroad in installment sales

Law 13259/16 introduced progressive income tax rates (from 15 percent to 22.5 percent) on capital gains earned by Brazilian individuals as of January 1, 2017. Until December 31, 2016, the tax rate levied was 15 percent. In August 2017, Normative Instruction 1732 of the Brazilian Federal Revenue Service ("RFB") clarifi ed that such progressive tax rates were also applicable to capital gains earned by legal entities domiciled abroad "in the sale of assets and rights of the noncurrent asset located in Brazil."

In Ruling 663 of December 27, 2017, the General Tax Coordination ("COSIT") understood, in summary, that (i) the income tax rate applicable to capital gains arising from sales with payments in installments is the one in force at the moment of the taxable event (and not upon each payment); and (ii) confi rmed that capital gains earned by non-residents from the sale of assets andrights in Brazil are subject to the same tax regime applicable to Brazilian individuals.

In the case analyzed by COSIT, the consulting party acquired, in 2016, shares of a Brazilian company from a Spanish legal entity with the payment of the price in two installments due in 2016 and 2018.

COSIT understood that:

  1. The legislation in force on the date of the taxable event determines the applicable tax treatment (Article 144 of the Brazilian Tax Code). As the taxable event occurs at the moment the ownership of the shares is transferred (2016), the capital gain earned by the Spanish legal entity is subject to 15 percent income tax, regardless of whether the payment of the price is made in installments;
  2. The capital gain earned by non-residents shall be calculated and taxed in accordance with the rules applicable to Brazilian individuals (Article 18 of Law 9249/95), unless there is a rule stating otherwise; and
  3. As with Brazilian individuals, non-residents may pay the income tax levied on capital gains arising from sales with payments in installments proportionally to the amount of each installment.

We point out that the understanding issued on COSIT Rulings shall be observed by all instances within the RFB and shall be applied to all taxpayers that are in the same situation presented in the Ruling.


Endnote
1 The list of signatory countries may be accessed in http://www.cnj.jus.br/poder-judiciario/relacoes-internacionais/convencao-da-apostila-da-haia/paises-signatarios

 

Authors:
Cristiane M.S. Magalhães,
Nathália Fraga,
Gustavo Boni

Machado Associados Advogados
Av. Brigadeiro Faria Lima 1656 - 11º andar
Sao Paulo 01451-918
Brazil
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