Brazil has recently issued a series of measures that intend
to encourage greater taxpayer compliance and ensure domestic
rules align with international tax initiatives. Legislation
published applies the concept of significant economic activity
to Austrian holding companies, amends the rules on the service
tax regime, implements CbCR and CRS rules, and introduces a tax
Brazil updates list of privileged tax regimes
Brazil has updated the list of privileged tax regimes to
apply the concept of significant economic activities to
Austrian holding regimes.
The Brazilian tax authorities (RFB) published Normative
Instruction (NI) 1.683/2016 on December 30 2016, limiting the
situations where the regime applicable to Austrian holding
companies may be regarded as a privileged tax regime.
Earlier, on June 4 2010, the RFB issued NI 1,037/2010,
updating the list of countries considered as tax havens (the
black list) and added a list of regimes regarded as privileged
tax regimes (the grey list).
The grey list, which has been subject to several changes
over the past few years, had recently been updated to add the
regime applicable to Austrian holding companies (NI 1,658/2016,
dated September 14 2016).
NI 1.683/2016, which updates the grey list, establishes that
the regime applicable to Austrian holding companies should be
regarded as a privileged tax regime when no significant
economic activities are carried out by the entity.
According to NI 1,658, a foreign holding company is deemed
to carry out significant economic activities if it has, in its
country of domicile, operating capacity to manage and make
1) Activities with the purpose of generating
income from its assets; or
2) Management of equity interests with the
purpose of generating income in the form of profit
distributions and capital gains.
Operating capacity would be measured by the existence of
physical facilities and the number of qualified employees to
manage and make decisions according to the complexity of the
tasks to be performed.
This change, together with the application of the Brazilian
controlled foreign corporation (CFC) rules, transfer pricing
and thin capitalisation rules, among others, may have
significant impacts on international structures involving
Brazilian entities and Austrian holding companies.
Multinationals are encouraged to analyse how this change will
impact their specific structures.
Brazil issues rules on service tax
The Brazilian Congress published Complementary Law 157/2016
on December 30 2016, setting new rules in relation to service
tax (ISS). It amends Complementary Law 116/2003 (LC 116/03),
which sets the general rules for ISS taxation.
ISS is a service tax levied on the local rendering of
services in Brazil. Although ISS is a municipal tax, the
federal government has the power to issue general standards
that must be followed by municipalities when creating local
Changes made by LC 157/2016 were mainly two-fold:
- Including new services to the ISS services list; and
- Introducing a de minimis effective ISS tax
Considering that only services expressly listed in the LC
116/2003 can be taxed by municipalities, the taxation of
digital solutions has been a controversial subject between
taxpayers and municipal tax authorities (e.g. online streaming
of digital content).
To address this issue, LC 157/2016 amended the list of
services to expressly include:
- Processing, storage or hosting of data,
texts, images, videos, electronic pages, apps, information
systems and similar services;
- Software programming, including electronic
games, for any platform, including tablets and smartphones;
- Online streaming of audio, video, image
and text without definitive assignment through the internet
(except for books, newspapers and journals, which are
Furthermore, Law 157/2016 also sets a minimum ISS effective
tax rate of 2%, forbidding municipalities from granting any tax
benefit that could in practice reduce this rate, except for
specific activities, such as civil construction and the
intra-municipal transportation of passengers.
Entities providing services listed by LC 157/2016 and/or
benefitting from any reduction of the ISS effective tax rate
should monitor developments in the ISS legislation of the
Brazil's final regulations on CbCR published
The RFB issued on December 29 2016 the final regulations in
relation to the implementation of country-by-country reporting
(CbCR), establishing the framework under which multinational
enterprises (MNEs) will be required to disclose information in
Brazil related to their economic activities worldwide.
According to the final regulations, the information will be
disclosed in a specific section of the Brazilian corporate
income tax return (ECF). The ECF format has already been
updated to incorporate this requirement.
Brazil launches tax regularisation programme
The Brazilian government released the Provisional Measure
No. 766/2017 (MP 766/2017) on January 5 2017, introducing the
tax regularisation programme (Programa de
Regularização Tributária (PRT)).
The scheme allows individuals and legal entities to
regularise both tax and non-tax indebtedness administered by
the RFB and by the National Treasury's Attorney General's
Office (PGFN). The initiative applies to tax or debt that was
due by November 30 2016.
Those opting into the scheme must enrol within 120 days of
the enactment of the regulation, which is due to be issued by
the RFB and the PGFN. Taxpayers may settle their debts through
one of the different settlement schemes provided by the MP
766/2017. Taxpayers should also forfeit any lawsuit or
administrative procedure initiated to challenge the debts.
Under certain schemes that allow payment by instalments,
taxpayers may use either their own net operating losses (NOLs),
or the NOLs from other companies of the same economic group
(local companies), to pay off their debts. This is available if
the NOLs are both accrued by December 31 2015 and declared by
June 30 2016. Furthermore, taxpayers may also use federal tax
credits to settle their debts.
It is important to emphasise that the MP 766/2017 does not
provide any reduction/relief on potential interest and/or
penalties included in the outstanding balances.
A Provisional Measure is a temporary law issued by the
Executive Branch of the Brazilian government that has the
authority of law until it is passed by the Brazilian Congress
within a prescribed 60-day period. If Congress does not act
within this initial period, then it expires unless it is
extended for an additional 60-day period.
Companies that are indebted with the federal government
should analyse whether they are eligible and if they could
benefit from enrolling in the tax regularisation programme.
Common reporting standard
The RFB issued on December 29 2016 the final regulations in
relation to the implementation of the common reporting standard
(CRS) in Brazil.
The regulations define the relevant information that should
be exchanged, including information on financial assets, as
well as the specific procedures that should be followed by the
financial institutions that will present the report.
Fernando Giacobbo (firstname.lastname@example.org)
and Ruben Gottberg (email@example.com)