The federal Brazilian tax authorities (RFB) published
guidance on December 14 2018 dealing with limited liability US
companies based in the RFB’s list of tax havens
and privileged tax regimes (Solução de Consulta
218/2018).
By way of background, the RFB’s Normative
Instruction 1,037/2010 lists a series of countries which it
considers tax havens, and also lists regimes/circumstances
where an entity in a non-tax haven may be considered to be
subject to a 'privileged tax regime’.
Classification as a privileged tax regime may produce various
adverse tax implications in Brazil, most notably from a
transfer pricing and worldwide taxation legislation
perspective, more restrictive thin capitalisation and general
deductibility rules, as well as withholding tax implications in
certain circumstances.
In relation to the US, the privileged tax regime list
includes the following:
With reference to the legislation of the United States,
the regime applicable to legal entities constituted in the
form of a state Limited Liability Company (LLC), whose
participation is composed of non-residents, not subject to
federal income tax.
Following development of the list, there has remained a
discussion whether the term "non-resident" should be considered
from a Brazilian or US perspective. SC 218/2018 has confirmed
that the term "non-resident" refers to a non-resident from a US
perspective. The position is based on broader analysis of the
relevant provision. The RFB targets entities where both the
entity itself and its shareholders are not subject to US
federal tax.
While a Solução de Consulta does not represent
law or a legal precedent, it does provide further support and
guidance for taxpayers in relation to the RFB position,
especially in the context of the interpretation and application
of a normative instruction (where litigation is less
likely).
|
Priscila Vergueiro |
|
|
Mark Conomy |
This article was written by Priscila Vergueiro
(priscila.vergueiro@pwc.com) and Mark Conomy
(conomy.mark@pwc.com) of PwC Brazil.