In this context, remittances made as royalties, payments for services or interest to beneficiaries domiciled in these jurisdictions will be subject, in Brazil, to higher rates of income tax withheld at source (25%), since these territories do not tax income or tax it at a rate lower than 20%, and/or have legislation that imposes confidentiality on information relating to the corporate structure of legal entities or their ownership.
Furthermore, it should be noted that transactions carried out between individuals or legal entities resident or domiciled in Brazil and those resident or domiciled in these jurisdictions will also be subject, in the country, to thin capitalization and transfer pricing rules, even if such agents are not considered related parties for tax purposes.
The aforementioned Normative Instruction further clarifies the concept of a company that engages in substantive economic activity for the purpose of classifying Danish and Dutch holding companies as having privileged tax regimes. Under the terms of the aforementioned regulation, "substantive economic activity" is that capable of generating, in the country of domicile of the aforementioned companies, their own operational capacity, evidenced by the generation of qualified employees and the existence of adequate physical facilities for the exercise of effective management and decision-making.
This measure, in line with the proposals included in the BEPS package, represents a clear strategy to reduce tax evasion maneuvers, differentiating substantively active companies from those created abusively with the specific purpose of reducing tax burdens. It is also in line with: (i) the requirement contained in Normative Instruction 1.634/2016 to disclose, as of January 1, 2017, the ultimate beneficiaries of international transactions (i.e., those individuals or entities that, directly or indirectly, own, control or have significant influence over certain companies, or on whose behalf the transactions are carried out), and (ii) the implementation of FATCA rules (through the enactment in Brazil of the “Convention on Mutual Administrative Assistance in Tax Matters”), which will also come into force on October 1, 2016, to promote the exchange of financial information, as well as mutual assistance in the effective collection of taxes and recovery of foreign assets between the signatory jurisdictions.
In this context, it becomes even more essential to hire an expert opinion regarding the adoption of international tax planning, since the recent measures described above will allow, in a short period of time, the Brazilian Federal Revenue Service to effectively identify the adoption of triangular operations or corporate reorganizations lacking in business purpose and economic substance.
1 Northern Ireland is not included in this list, as it is part of the United Kingdom, which, as expected, is considered by the Brazilian Federal Revenue Service as an independent territory for tax purposes.
2 Base Erosion and Profit Shifting.
3 Decree No. 8.842/2016 published in the Official Gazette of the Union on August 30, 2016.
