Amid the economic crisis, the Brazilian Federal Government recently enacted Provisional Measures Nos. 683 (“MP No. 683/2015”) and 685 (“MP No. 685/2015”), establishing important tax and foreign exchange rules, aiming, on an emergency basis, to increase tax collection, to assist the harmonization of the most relevant state tax in order to avoid state harmful tax regimes, and, also, to introduce mandatory disclosure rules, in line with global transparency efforts developed under the OECD Base Erosion and Profit Shifting (BEPS) program.
In Addition to the Provisional Measures, Brazil recently enacted the Agreement entered into with the Government of the United States of America (USA) to improve tax compliance and international implementation of the Foreign Account Tax Compliance Act (FATCA), which authorizes the exchange of information of financial income generated by account holders in both countries.
The most relevant points introduced by the Provisional Measures can be summarized as follows:
a)MP 683/2015:
The creation of the Infrastructure and Regional Development Fund (Fundo de Desenvolvimento Regional e Infraestrutura or “FDRI”) and Financial Assistance Fund for Convergence of Rates over Transactions related to State Tax on the Circulation of Goods and Services (Fundo de Auxílio Financeiro para Convergência de Alíquotas do Imposto sobre Operações Relativas à Circulação de Mercadorias e sobre Prestações de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação or “FAC-ICMS”) – with the purpose of simplifying interstate commerce as well as to stimulate the investment in production and regional development.
The introduction of a Special Regime for Regularization of Foreign Exchange Assets and Taxes (Regime Especial de Regularização Cambial e Tributária “RERCT”) – aiming to regularize funds held abroad or internalized in Brazil, provided the same did not originate from illegal activities;
b)MP 685/2015:
- Introduction of the Program for Reduction of Tax Litigation (Programa de Redução de Litígios Tributários or “PRORELIT”).
- Introduction of the obligation to deliver an Aggressive Tax Planning Return (Declaração de Planejamento Tributário “DPLAT”) .
The Funds and their resources
The FDRI has the purpose of assuring resources for infrastructure and state development, reducing regional economical inequalities, financing investments in infrastructure projects and promoting interaction between the country’s regions. The FAC-ICMS, in turn, intends to compensate States and Federal District losses caused by eliminating tax incentives and harmonizing ICMS rates. Both funds will be constituted primarily with the proceeds from the RERCT.
The establishment of the RERCT still demands regulation. This topic is already subject of the Senate Bill No. 298, 2015, which is being processed in the Congress.
THE PRORELIT
The PRORELIT authorizes the taxpayer with outstanding debts with due date up to June 30th 2015, and that are being discussed in administrative and judicial proceedings with the Brazilian Tax Revenue Office or The National Treasury Attorney’s Office, to request the payment of such debts by offsetting them against credits derived from accumulated tax losses accrued up to December 31st 2013, and reported to the Brazilian Tax Revenue Office by June 30th, 2015.
It is worth mentioning that, besides using their own credits derived from accumulated tax losses, applicants can use tax losses carried forward by directly or indirectly controlling and controlled entities and, also, among entities directly or indirectly controlled by another same company. Furthermore, it will be possible to use credits owned by co-responsible or responsible entities or persons for the relevant tax debt being discussed in administrative or judicial proceedings.
The deadline for applying for the PRORELIT is 30th September 2015. Portaria Conjunta RFB/PGFN n° 1.037/2015 sets out the procedures for applying for the program.
The DPLAT
Finally, the DPLAT establishes the obligation to deliver information about tax planning to be implemented by taxpayers that may result in the exclusion, reduction or deferral of taxes. The DPLAT still awaits regulation and must be submitted by the taxpayer to the Federal Revenue of Brazil, by September 30th of each year. As the procedures for submitting the new ancillary obligation have not yet been issued by the Federal Revenue, the deadline for the 2015 DPLAT has been postponed and the new deadline is still pending of publication by such authority.
This is an ancillary obligation established in accordance with the requirement of transparency that has been agreed by OECD cooperative countries, in line with the principle of a Global Tax view and the respective implementation of the Action Plan 12 (Mandatory Disclosure Rules) of such OECD BEPS.
The DPLAT must include information on: (i) legal actions taken on transactions implemented that do not have relevant economic substance; (ii) actions or transactions of unusual format, and that use indirect legal transactions or contain clauses that denature, even partially, the effects of a typical contract; or (iii) actions or specific legal transactions provided for in the norms issued by Federal Revenue.
It is worth mentioning that the DPLAT will be considered invalid if: (i) submitted by someone who is not the subject of tax obligations eventually arising from transactions for the actions or declared legal transactions; (ii) essential data to understand the action or legal business is not disclosed; (iii) it contains false material or ideology and (iv) involves the interposition of fraudulent persons.
Failure by a taxpayer to file the return characterizes malicious omission for the purpose of evasion or fraud and the taxes due will be charged with default interest and a penalty of 150% (one hundred and fifty percent).
Having regard the importance of the measures and the need for regulation, there will be a lot of discussion in relation to the new tax rules, especially as far as enforcement is concerned.
FATCA and improvement of international tax compliance
More recently, Brazil enacted the Decree Nº. 8,506/2015 implementing the Agreement for the improvement of international tax compliance and implementation of the Foreign Account Tax Compliance Act, which provides for the exchange of information on financial revenue of Brazilians and Americans citizens holding bank accounts in one of the countries, in line with the Agreement entered into and between Brazil and United States, the so called FATCA – Foreign Account Tax Compliance.
In 2007, the Brazilian Government had already entered into with the USA the Agreement for Exchange of Information Related to Taxes (“TIEA”), aiming to improve international tax compliance through mutual assistance in tax matters based on an effective infrastructure for the automatic exchange of information. With the new FATCA, Brazilian tax authorities will not only have access to the tax data of Brazilian residents, but also to their financial accounts held in the USA. The same procedure will be available to the US / IRS for US citizens with Brazilian bank accounts.
The submission of financial information had already regulated by Brazilian Revenue, even before the FATCA was enacted. By July 2015, the Federal Revenue created the ancillary obligation e-Financeira, whereby, in accordance with FATCA, financial institutions and entities dealing with relevant financial events will need to submit information related to events from July to December of 2014. The deadline for such submission was last 31st of August 2015.
Additional information can be obtained from Maria Cecilia Rossi (mcecilia.rossi@montgomery.adv.br), who heads the Tax Department at Montgomery & Associados.