Amid the economic crisis, the Brazilian Federal Government recently issued Provisional Measures No. 683 (“MP No. 683/2015”) and 685 (“MP No. 685/2015”), which instituted relevant tax and exchange rate changes, with the aim of urgently increasing revenue, assisting in the harmonization of the main state tax (ICMS) to reduce the tax war, and also introducing tax compliance standards, in response to the international demand for fiscal transparency discussed in the Base Erosion and Profit Shifting (BEPS) program, developed by the Organization for Economic Cooperation and Development (OECD).
In addition to the Provisional Measures, Brazil also enacted the Agreement signed with the Government of the United States of America (USA) to improve international tax compliance and implement the Foreign Account Tax Compliance Act (FATCA), which authorizes the exchange of information on financial income of account holders in both countries.
The main changes introduced by the measures can be summarized as follows:
a) MP683/2015:
establishment of the Regional Development and Infrastructure Fund (“FDRI”) and the Financial Aid Fund for Convergence of Tax Rates on Transactions Relating to the Circulation of Goods and the Provision of Interstate and Intermunicipal Transportation and Communication Services (“FAC-ICMS”) – designed to facilitate interstate trade and stimulate productive investment and regional development; and the Special Regime for Exchange and Tax Regularization (“RERCT”) – aimed at the exchange regularization of assets held abroad or internalized, provided they do not originate from illicit activities.
b) MP685/2015:
establishment of the Tax Dispute Reduction Program ("PRORELIT"); and introduction of the Tax Planning Declaration ("DPLAT"). The Funds and their resources: The FDRI aims to guarantee resources for infrastructure and development of the States, reducing regional socioeconomic inequalities, funding the execution of infrastructure investment projects, and promoting greater integration among the various regions of the country. The FAC-ICMS, in turn, aims to offset the losses that the States and the Federal District will incur with the end of tax incentives and the unification of ICMS rates. Both Funds will be constituted, basically, with the resources obtained from the RERCT. The establishment of the RERCT still depends on regulation, and the topic is already the subject of Senate Bill No. 298, of 2015, which is currently being processed in this legislative house. The PRORELITO PRORELIT allows the taxpayer with tax debts, due up to June 30, 2015 and under administrative or judicial discussion before the Brazilian Federal Revenue Service or the Attorney General's Office of the National Treasury to request, by withdrawing the respective litigation, the payment of the debts involved using their own credits from tax losses, determined up to December 31, 2013 and declared up to June 30, 2015.
c) It is worth noting that, in addition to the use of the aforementioned own credits, credits may be used between controlling and controlled legal entities, directly or indirectly, or between legal entities that are directly or indirectly controlled by the same company. Additionally, credits from the taxable person or co-responsible for the tax credit may be used in administrative or judicial litigation to settle debts.
The deadline for joining PRORELIT is September 30, 2015 and the regulations for joining the program were introduced by Joint Ordinance RFB/PGFN No. 1.037/2015. DPLAT
Finally, the DPLAT establishes the mandatory filing of a declaration with information on tax planning measures considered "aggressive" to be implemented by taxpayers that entail the elimination, reduction, or deferral of taxes. The DPLAT is still awaiting regulation and must be submitted by taxpayers to the Brazilian Federal Revenue Service by September 30th of each year. As it has not yet been regulated, the deadline for filing the 2015 DPLAT has been postponed by the Federal Revenue Service, which will announce the new date.
This is an additional obligation established in compliance with the duty of transparency that has been discussed in line with the principles of a Global Tax System adopted by countries cooperating with the OECD and their policies for implementing Plan 12 (Mandatory Disclosure Rules) of the aforementioned BEPS of that international organization.
The following information must be included in the DPLAT: (i) legal acts or transactions performed that do not have relevant extra-tax reasons; (ii) acts or transactions whose adopted form is not usual, and uses an indirect legal transaction or contains a clause that distorts, even partially, the effects of a typical contract; or (iii) specific acts or legal transactions provided for in an act of the Brazilian Federal Revenue Service.
It is important to mention that the declarations will be considered ineffective when: (i) presented by someone who is not the taxpayer of the tax obligations eventually resulting from the operations related to the declared legal acts or transactions; (ii) they omit essential data for the understanding of the legal act or transaction; (iii) they contain hypotheses of material or ideological falsehood and (iv) they involve fraudulent interposition of persons.
Failure to submit the aforementioned declaration will be considered a willful omission by the taxpayer, constituting tax evasion and/or fraud, and the taxes due will be charged, plus interest on arrears and an official fine of up to 150% (one hundred and fifty percent).
Considering the relevance of the measures and the need for regulation, much will still be discussed regarding their implementation.
FATCA and improving international tax compliance
More recently, Brazil enacted, through Decree No. 8.506, of July 24.07.2015, XNUMX, the Agreement for the Improvement of International Tax Compliance and the Implementation of the Foreign Account Tax Compliance Act, – FATCA (“FATCA Agreement”), signed with the USA.
In 2007, Brazil had already signed the Tax Information Exchange Agreement (TIEA) with the same country, which enabled the exchange of tax information for taxpayers from both countries, promoting international tax transparency. With the new FATCA Agreement, Brazilian tax authorities will have access not only to tax data but also to the financial data of Brazilian residents who maintain accounts with US financial institutions. The same will occur for US residents who maintain current accounts in Brazil.
Obtaining financial information was already regulated by the Brazilian Federal Revenue Service, even before the enactment of the FATCA Agreement, when the e-Financeira accessory tax obligation was established in July 2015. The first batch of information provided through e-Financeira, in compliance with the FATCA Agreement, had a delivery deadline set for August 31.08.2015, 2014 and must cover facts related to the months of July to December of the XNUMX calendar year.
Additional information can be obtained from Maria Cecília Rossi (mcecilia.rossi@montgomery.adv.br), head of the Tax Department at Montgomery & Associados.
