The Senate Bill of Law No. 405/2016 (“PLS 405/2016”) was approved by the Federal Senate Plenary on November 24, 2016, which intends to reopen the deadline for joining the Voluntary Disclosure Program for Foreign Exchange and Tax Regularization of Funds Maintained Overseas (“RERCT”), established by Law No. 13,254 / 2016.
Such Bill of Law, which is still pending approval by the Chamber of Deputies, as well as presidential sanction, intends to establish new conditions for individuals and corporate entities, resident or domiciled in Brazil on June 30, 2016, that maintain legal sourced funds abroad, earned prior to such date, albeit not declared to the Brazilian authorities, to do so without incurring penalties of a criminal nature and with tax advantages.
The following amendments proposed by PLS 405/2016 stand out:
- The reopening of the application deadline for joining the program, to expire within 120 days as from the thirtieth day of publication of the law, as well as the possibility of enrolment by non-residents in Brazil on June 30, 2016, who appeared in this condition in the period between 2010 and 2016;
- Criminal amnesty for illicit conducts related to undisclosed funds, assets and rights to be regularized is limited to the date of effective enrolment with the program;
- The possibility of regularization of funds, assets and rights held abroad based on their equity position on June 30, 2016, and no longer on December 31, 2014;
- Increase of the income tax rate from 15% to 17.5% and application of a regularization penalty equivalent to 100% of the tax collected, amounting to the total aggregate rate of 35%;
- The foreign exchange rate to be used for converting the corresponding amounts of funds, assets and rights subject to regularization into reais, as well as for calculating the applicable income tax and penalty will be the rate set on June 30, 2016 (USD 1.00 = BRL 3.21); and
- The impossibility of enrolment by the chiefs of the federal, state and municipal executive branch (Presidents and Vice Presidents, Governors and Vice Governors, Mayors and Vice Mayors) and by any public agents of direct or indirect public administration entities in the three branches of government in office, or who held such position on January 14, 2016.
Some inconsistencies in the Bill of Law’s draft should be resolved by the Chamber of Deputies or should be subject to a presidential veto. The provision that determines the inclusion of income earned after July 1, 2016 – stemmed from the use of funds subject to regularization in revised income tax returns (in case of individuals), in the rectification of corporate accounting bookkeeping (in case of corporate entities), and in revised statement of goods and capital held abroad (“CBE”), applicable to both – should be revised in due to its inapplicability to the income earned during the calendar year of 2016. In addition, the non-extension of the enrolment restriction by spouses and consanguineous or related relatives, up to the second degree, of the public agents and member of federal, state and municipal executive should also be subject to further revision.
Other provisions of PLS 405/2016 that are certain to be the subject of discussion for inflicting legal uncertainty to taxpayers’ enrolment are the absence of a clear definition regarding the photo criterion (enrolment based on the “picture” of the equity situation of the asset or right on June 30, 2016) or film criterion (statement comprising the total amount held abroad in previous periods, including the already disbursed portion which are no longer part of the declarant’s assets on the aforementioned date); as well as the possibility of extending the enrollment to those taxpayers who already enrolled in the former amnesty program (until October 31, 2016) so as to include assets, rights and income earned between January 1, 2015 and June 30, 2016, considering that the previous regime already determined the settlement of such assets by means of ordinary disclosure and payment of ordinary income tax rates added to default interest.