www.pwc.com Brazilian Tax Highlights An overview for foreign investors 20 April 2017
Contents Tax transparency Cash repatriation Q&A Appendices PwC 2
Tax transparency and efficiency in Brazil 1 CbCR and MCAA 2 Exchange of information on tax rulings 3 Identification of beneficial owners 4 Simplification 5 Tax audits in Brazil PwC 3
Tax transparency and efficiency in Brazil 1 CbCR and MCAA PwC 4
The BEPS initiative Due to recent cases of abusive tax planning implemented by multinational enterprises, and political pressures for organizations to pay their fair share of taxes, the Organization for Economic Cooperation and Development (OECD), together with the G20 countries, has been exploring alternatives to combat abusive practices since 2013. The Base Erosion and Profit Shifting (BEPS) initiative was then created to help closing the gaps in international taxation. In October, 2015, the OECD issued the final recommendations on the 15 Action Items of the BEPS. These measures range from new minimum standards to revision of existing standards, and countries are committed to this comprehensive package and to its consistent implementation. PwC 5
The BEPS initiative & Brazil • July, 2013 - Brazilian IRS first manifested the intention to participate in the BEPS initiative. • 18 June, 2014 - National Congress authorized the Country’s formal participation (Law #12.995). • Brazilian IRS understands that recent changes to Brazilian legislation already comply with other Actions proposed under the BEPS initiative, such as: Transfer Pricing (new deductibility rules for interest payments, new fixed profit margins and calculation methodologies); stricter CFC rules (very efficient to prevent base erosion and profit shifting); thin capitalization rules ; and adjustments to the tax havens’ list , plus stricter rules for remittances to these countries. • Actions 5 and 13 were partially adopted by the Brazilian IRS, by means of certain normative instructions which focused on minimum standards agreed in these actions, for purposes of demonstrating transparency and substance of the companies’ activities. PwC 6
What is Action Plan 13? 1 2 3 Overview of the global business of the multinational enterprise, transfer pricing Master File policies and allocation of income and activities. Detailed transfer pricing information of transactions taking place between the Local File entities of the jurisdiction with related parties and financial information of those transactions. Wide information and indicators related to the business of the group including Country-by-Country Report global allocation of income, taxes paid and due for each entity of the group. Normative Instruction 1,681/2016 PwC 7
Normative Instruction 1,681/2016 Normative Instruction* 1,681/2016, issued on 29 December, 2016, establishes the framework under which multinational enterprise groups would be obliged to disclose information in Brazil regarding the Country- by-Country Report (CbCR) The ultimate parent company may be obliged to file an annual CbCR in Brazil if the group’s annual consolidated revenues exceed either BRL 2.26 billion or EUR 750 million (depending on whether the ultimate controller is a Brazilian resident or not). *The Normative Instructions issued by the Brazilian Federal Revenue Service constitute ancillary normative acts to the laws, treaties, international conventions and president decrees, which serve to regulate the taxes and the taxpayers activities. As complementary standards, their validity and effectiveness depend on compliance with the above mentioned primary normative acts. PwC 8
Normative Instruction 1,681/2016 Who is obliged to Where and When the CbCR Penalties prepare the CbCR in Brazil needs to be filed Ultimate controlling entity To be filed with the Entities failing to file, of the group, resident for tax Brazilian Income Tax filing late: fines ranging purposes in Brazil; Return: ECF – Electronic from BRL 500/ month; Tax Bookkeeping; and Substitute reporting entity; or First filing deadline will 3% on any amount that be on 31/07/2017, has not been declared or Subrogate entity resident for regarding tax year that was inaccurately / tax purposes in Brazil beginning on 1 January, incompletely reported. (under certain situations, 2016. such as systemic failures). PwC 9
Normative Instruction 1,681/2016 Increasing substance, Relevant aspects to be considered transparency and consistency! 1 Joint Venture investments should be reported in the CbCR by one of its shareholders (the investors should define who will perform this obligation). Financial information should be disclosed with the full amount 2 registered in the financial statements (i.e.: 100%) of each entity, regardless of the participation interest of the ultimate controlling entity in those investments. 3 Information should be reported using the currency of the group’s ultimate controlling entity. PwC 10
Multilateral Competent Authority Agreement (MCAA) The Amended Convention on Mutual Administrative Assistance in Tax Matters signed by Brazil in 2011 entried into force in 01 October 2016. On 21 October 2016 , Brazil joined the Multilateral Competent Authority Agreement for the automatic exchange of CbCR, which is based on article 6 of the Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 protocol. On the same day, Brazil signed the CRS Multilateral Competent Authority Agreement, re-confirming its commitment to implementing the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) in time to commence exchanges in 2018. PwC 11
CbCR in practice if the group fails into CbCR scope… From a French standpoint, the French subsidiary of a Brazilian group , on its tax form 2065 (2017 • printout to be filed with FY16 tax return), has to : • Tick a box where the French affiliate of a foreign group is responsible for filing the CbCR; or • Mention the name, address and country of the company (located in France or in a country subject to the CbCR requirement such as Brazil) which is responsible for filing the CbCR (provided MCAA has been signed). PwC 12
CbCR in practice if the group fails into CbCR scope… From a Brazilian point of view, the Brazilian subsidiary of a foreign group : • 1. Has to indicate in Brazil basically which is the ultimate controlling entity of the group and fill the form with all the details of this entity, such as its fiscal jurisdiction and tax identification number (TIN), provided that the ultimate controlling entity of the group (or another entity indicated by the group as the substitute one) complies with the following conditions: i. Is located in a jurisdiction where the filing of the CbCR is already in force with the same content required in Brazil; ii. Has already signed the MCAA for the automatic exchange of the CbCR; iii. Files the CbCR in a period no longer than 12 months from the last day of the fiscal year reported (specifically required only for the substitute entity); iv. Is not located in a jurisdiction that have already notified the Brazilian tax authorities or been notified by them in relation to the occurrence of systemic failure in exchanging the CbCR; OR 2. Must also file the CbCR in Brazil, as the surrogate entity, in case the Brazilian subsidiary is held by a group established in a country which fails to comply with any of the above mentioned conditions. PwC 13
Tax transparency and efficiency in Brazil 2 Exchange of information on tax rulings PwC 14
Exchange of information on tax rulings • Normative Instruction 1,689/2017, in force as from 21 February 2016, regulates the exchange of information on tax rulings within the framework of improving transparency relating to rulings under Action 5 of the BEPS Action Plan. • Under this instruction, any private rulings ( solução de consulta ) or divergence rulings ( solução de divergência ) on the following topics may be object of exchange of information: transfer pricing; tax incentive related to PADIS; and permanent establishments. • Taxpayers requesting rulings on those topics must state in their requests: identification of the direct or final controller of the legal entity requesting the ruling, as well as its country of residence (if it is located abroad); and the country of residence of: – all related parties with whom the taxpayer carries on transactions relating to the topic under consultation; and – the head office and the permanent establishment, when the ruling request is related to permanent establishments. • A summary of these tax rulings will be submitted to the tax authorities of the jurisdictions included in the scope of the consultation with whom Brazil has a signed agreement for exchange of information*. *Brazil has not yet signed any specific agreement for exchange of information related to rulings, such as the MCAA for the automatic exchange of the CbCR. The provision of administrative assistance in DTTs, like article 26 of the France-Brazil Treaty may be not sufficient. The Brazilian tax authorities have not yet formally issued any further clarification on this matter. PwC 15
Tax transparency and efficiency in Brazil 3 Identification of beneficial owners PwC 16
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