Brazilian tax authorities have provided guidance on the
application of the reduced 0% income withholding tax rate on
international charter leasing payments.
The federal Brazilian tax authorities (RFB) published on
September 28 2018 Solução de Consulta
– Cosit 166/2018 (dated September 26 2018),
stating that the reduced rate of 0% income withholding tax may
apply on amounts as consideration for international charter
leasing of boats/vessels, but the beneficiary must not be
located in a jurisdiction considered a tax haven. Further, it
said that the reduced rate of 0% may still apply where the
international remittance is made by a third party located in
Brazil directly, rather than the entity that is performing the
leasing.
By way of background, there are specific rules providing for
a reduced rate of income withholding tax to 0% in circumstances
involving charter leasing of boats, where the beneficiary of
the remittance is not located in a tax haven. This benefit is
subject to specific rules and restrictions, where the lessor of
the vessel (or a related party of the lessor) is simultaneously
providing access to the vessel as well as performing services
to a Brazilian lessee – these rules introduce adverse
consequences for entities both located in tax havens as well as
subject to privileged tax regimes. These specific rules were
not in discussion as part of the present decision.
In the present case, the taxpayer was a service provider, in
the business of performing general engineering and construction
services, including sub-aquatic and maritime engineering and
construction services. Specifically, the service provider was
to enter into a contract to provide engineering services
(installation of sub-aquatic transmission lines and ducts) to
an entity holding a concession to exercise activities involving
exploration, development and production of oil and natural gas.
In order to perform the engineering services, it was necessary
to have access to a specific type of foreign vessel –
in this case, owned by an entity located in the US.
Pursuant to the regulations instituted by the National
Waterway Transportation Agency, or Agencia National de
Transportes Aquaviários (ANTAQ), only entities
classified as Brazilian navigation companies, or Empresa
Brasileira de Navegação (EBN), may lease
foreign vessels to navigate and provide maritime support.
Neither the taxpayer nor the ultimate recipient of the services
(concession holder) had such classification. As such, the
service provider contracted a company classified as an EBN to
lease the vessel. The arrangement under contemplation involved
a tri-partite contract whereby, although the EBN would be the
lessee of the vessel, the payment would be made directly by the
service provider to the beneficiary located in the US.
Broadly, the RFB considered that there were four
requirements that should be satisfied in order to determine
whether the reduced 0% rate should be applied to the remittance
abroad in consideration for the charter leasing of vessels:
- The value of the remittance should
correspond to the effective receipt of charter, freight,
rental or leasing of foreign maritime and inland waterway
vessels, arising in Brazil;
- The charter, leasing, etc. should be made
by companies and should be approved by the competent
authorities;
- The company remitting the amount (source
payee) should be situated in Brazil; and
- The beneficiary of the income cannot be
resident or domiciled in a jurisdiction that the RFB
considers a tax haven.
In applying the criteria to the specific case, as both the
service provider and the EBN were situated in Brazil, the RFB
concluded that the tri-partite arrangement had the effect of
shifting the withholding tax requirement to the Brazilian
service provider. Further, that there was no impediment or
restriction in the service provider being entitled to benefit
from the reduced rate of 0% withholding tax provided under the
legislation, despite the fact that this entity was not (and
could not be from a regulatory perspective) the actual lessee
under the tri-partite agreement.
While a Solução de Consulta does not
represent law or a legal precedent, it does provide further
support and guidance for Brazilian entities in relation to how
the RFB are treating such arrangements. The decision represents
a welcome confirmation for Brazilian entities operating and
providing services to the oil and gas industry (among
others).
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| Jaime Andrade |
Mark Conomy |
Fernando
Giacobbo |
Jaime Andrade (jaime.andrade@pwc.com), Mark Conomy (conomy.mark@pwc.com) and Fernando Giacobbo (fernando.giacobbo@pwc.com)
PwC
Website: www.pwc.com.br