Significant changes are being made to the tax legislation
governing the oil and gas sector, as well as new guidance on
the taxation of capital gains.
Update to the Brazilian oil and gas tax framework
The Brazilian government enacted Provisional Measure (PM)
795/2017 on August 18 2017, bringing in significant changes to
the tax legislation governing the oil and gas sector. Further,
Decree 9,128/17, published on the same date, extended the
application of the special customs regime (REPETRO) until
December 31 2040.
However, PM 795/2017 has temporary effect because it
requires approval by Congress to be converted into law. For
now, it is valid for 60 days, extendable only once for an equal
Deduction of expenses incurred during
exploration/production and development phases
PM 795/2017 closes uncertainties regarding the tax treatment
of the expenses incurred in the exploration and production of
oil and gas.
The previous provision regulating this matter was enacted at
the time Petrobras used to have the monopoly for the
exploration and production of oil and gas in Brazil. For this
reason, until now, only Petrobras had express legal
authorisation to deduct such amounts. The legislative change
extends the authorisation for deductions of such expenses to
all taxpayers performing oil and gas exploration and production
Regarding the expenses related to development activities, PM
795/2017 establishes the possibility of accelerated depletion
of assets until December 31 2022, based on the rate determined
by the method of the units produced (UOP method) multiplied by
This is the first time that this accounting method, so
common in the oil and gas sector (UOP method), is expressly
referred to in tax legislation.
Aspects regarding bare boat charter agreements
From January 1 2018, the new rule lowers the maximum
percentages benefitting from a 0% withholding income tax (IRRF)
on remittances related to charter agreements when they are
executed, simultaneously to service agreements, by related
entities (tripartite agreements).
The new percentages are listed in Table 1.
December 31 2017
January 1 2018
|Floating systems for
production or storage and unloading
|Systems for drilling,
completion and maintenance of wells
|Other types of
|Vessels to provide
transport, handling, transfer, storage and regasification
services for liquefied natural gas
PM 795/2017 further establishes that the percentages in
Table 1 do not change the nature of charter agreements for the
purposes of CIDE, PIS and COFINS.
Charter agreements with entities domiciled in tax
The new rule also establishes that a 25% IRRF applies on the
entire remittance if the charter fee is paid to a beneficiary
domiciled in a tax haven or subject to a privileged tax regime,
regardless of the compliance with limits mentioned above.
PM 795/2017 further establishes the special import regime
with total suspension of payment of federal taxes (II, IPI,
PIS-Import and Cofins-Import) for goods imported on a permanent
basis and destined to the exploration, development and
production of oil and natural gas. The special import regime
will apply to taxable events occurred up to July 31 2022.
Other particular features
Some other particular features of PM 795/2017 include:
- New concept of related entities regarding
- REPETRO – extended to 2040
(change brought by Decree 9,128/17);
- Possibility of the conversion of temporary
admissions into permanent imports with tax suspension
(federal), which is still to be regulated; and
- Tax suspension of federal taxes on import
and local purchases of intermediary materials and inputs
utilised in the manufacturing of products destined for the
exploration, development and production of oil and gas.
PM 795/2017 was generally well received by companies in the
oil and gas sector as the changes, together with other
regulatory measures, indicate a movement by the Brazilian
government to build a more attractive scenario to promote this
sector in the country.
The companies in the oil and gas sector should be alert to
these changes as they have a relevant impact on the total tax
burden on oil and gas activities in Brazil and potential tax
implications on existing charter agreements.
Finally, the Brazilian tax authorities recently issued
Normative Instruction (NI) 1,743/2017, which regulates the
special tax treatment established by PM 795/2017 and brings
further changes to the REPETRO.
Tax authorities issue guidance on taxation of capital
Separately, Brazilian tax authorities (RFB) issued NI
1732/2017 on August 29 2017, which confirms the application of
increased tax rates on non-resident capital gains.
By way of background, Law 13,259/2016 introduced new rates
for taxing capital gains on individuals (and non-residents)
arising on the alienation of Brazilian assets and rights,
varying from 15% to 22.5% (depending on the amount of the
Although the new rules were intended to enter into force on
January 1 2016, the Brazilian Federal Revenue Authorities'
(RFB) issued an Interpretative Declaratory Act 3/2016 (ADI
3/2016) on April 29 2016, stating that the increased
progressive tax rates in relation to capital gains derived by
individuals (and non-residents) should apply from January 1
NI 1.732/2017, recently issued, confirms the application of
the new tax rates on capital gains, realised by non-residents
legal entities, arising on the alienation of Brazilian assets
Multinational companies undertaking or intending to
undertake reorganisations, sales or acquisitions of Brazilian
investments should consider how the changes to the rates may
impact their transactions.
Brazilian Congress approves TIEA between Brazil and
The Brazilian Congress approved the tax information exchange
agreement (TIEA) between Brazil and Switzerland on July 21
2017. The TIEA was signed in 2015 and governs the exchange of
tax-related information between the countries. The TIEA will
now be discussed in the Brazilian Federal Senate in order to
complete its ratification process in Brazil.
and Jaime Andrade
Fernando Giacobbo (firstname.lastname@example.org),
Ruben Gottberg (email@example.com)
and Jaime Andrade (firstname.lastname@example.org)