As from April 4, 2016, Brazilian residents with unreported offshore assets are able to join the Special Currency and Tax Regularization Regime (RERCT) established by Law No. 13,254/2016 and regulated by the Brazilian Federal Tax Revenue under Normative Instruction No. 1,627/2016.
The RERCT enables individuals and companies resident or domiciled in Brazil on December 31, 2014[1], to voluntarily declare undisclosed or incorrectly disclosed amounts, assets and/or rights that were previously remitted or held abroad, without facing criminal prosecution, provided their origin was legal. Although the law enforcement provisions for the amnestied crimes remain in force, the program obliterates all legal remembrance of the offense of those who committed them if all of the requirements have been duly satisfied.
In short, taxpayers may formally adhere to the RERCT by adopting the following procedures:
(a) Electronic submission of the Currency and Tax Regularization Statement (“DERCAT”) by accessing the Virtual Service Center of the Brazilian Federal Revenue (e-CAC) from April 4th to October 31st 2016 and using the form approved by Executive Declaratory Act No. 02/2016, which allows further amendments to the information contained therein;
(b) Full payment of income tax, at the rate of 15%, and the corresponding penalty of 100% of the income tax payable, both imposed on the existing taxpayer’s balance on October 31st, 2014 and converted from US dollars into Reais at the foreign exchange rate of that same date (BRL 2,6562).
Even if assets no longer existed on such date, or if the properties are no longer in the taxpayer’s name, taxpayers should submit the expected value of such assets on October 31st, 2014, as evidenced by documentation portraying the value of the transaction or its equivalent;
(c) Rectification of past Income Tax Returns (for individuals), or tax and accounting records (in the case of corporate entities) and, in both cases, filing the Statement of Brazilian Assets Held Overseas (CBE), all for 2014 calendar year and thereafter, for the information of assets mentioned in the DERCAT.
Taxpayers will certainly benefit from both the income tax and penalty rates set out in item (b) above. If the debt were to be settled outside of the RERCT, not only both rates would be considerably higher, but also additional arrear penalty charges would be imposed on the taxable amount, as more detailed below:
Adherence to the RERCT implies irreversible acknowledgment of all tax payable debts related to taxable events having occurred up to and including October 31st, 2014 and which failed to be collected, forgiveness of other related federal tax debts, and 100% reduction of all remaining fines and charges.
The RERCT does not encompass extinct tax debts or those which already have been assessed by tax authorities and have not been paid by January 14th, 2016. However, this requirement can be challenged in court since it was not provisioned in the Law that established the amnesty program (Law No.13,254/2016).
Taxpayers who do not comply with the above procedures, or submit via DERCAT false information about the nature, ownership, origin or value of the assets will be excluded from the program. Appeals against the decision determining a taxpayer’s exclusion can be filed within 10 days, and ultimately decided by the Brazilian Federal Revenue Superintendent.
It is worth mentioning that joining the RERCT does not entail a mandatory repatriation of funds and that its benefits do not exclude the possibility of the taxpayer being assessed by state and/or municipal tax authorities.
From a criminal law standpoint, we consider that non-adherence to the RERCT can be a risky decision as recent international agreements will enable a broad exchange of information between the tax authorities of Brazil and other countries, such as the agreement between Brazil and the United States to implement the “Foreign Account Tax Compliance Act” (FATCA).
In our view, the program is an excellent opportunity to deal with unreported funds, assets and/or rights previously remitted or maintained abroad. However, caution is needed so as to not provide evidence regarding crimes which are not sheltered by the Repatriation Act.
We remain available in case of any doubts or further clarification.
[1] Except those who have been convicted of criminal activities provided for in the Repatriation Act, even if not yet final, those who serve public offices, public positions and functions, and those who have in January 13, 2016 public servants as spouses, blood relatives or relatives up to the second degree or by adoption.