New Brazilian rules on ultimate beneficiary disclosure
The Brazilian Internal Revenue Service (IRS) has issued Normative Instruction (NI) No. 1.634 with the purpose of updating the main regulatory provisions regarding the Corporate Taxpayer Registry (CNPJ).
This procedure is periodically repeated by the IRS and that usually does not attract much taxpayer attention, as it only encompasses certain bureaucratic provisions for complying with the CNPJ registry. This time, however, the introduction of an unusual set of rules on May 9 2016 surprised Brazilian taxpayers.
Among the habitual bureaucratic rules, the IRS introduced an obligation for entities registered with the CNPJ to disclose information on individuals authorised to legally represent them, as well as the chain of corporate interest up to individual deemed as its final beneficiary – ie individuals that directly or indirectly own, control or significantly influence the entity, or the individual on behalf of whom a transaction is conducted. For final beneficiary purposes, “significant influence” is defined as ownership of more than 25% of the entity capital or the exercise of preponderance in corporate resolutions and the power to elect a majority of entity's management, even without controlling it.
As broadly stated by the IRS, the main purpose of this new set of rules is to supply Brazilian authorities with information on the real economic beneficiaries of Brazilian entities’ proceeds, even if they are domiciled abroad, and therefore to provide a mechanism against corruption, money laundering and tax evasion.
However, apart from its main goal, the final beneficiary provisions may also trigger a series of collateral consequences for Brazilian entities, as well for its foreign investors, related to such subjects as taxation on remittance of capital abroad, tax benefits for Brazilian investments funds held by foreign investors and acquisition of rural land in Brazil, among others. As a result, foreign investors are advised to carefully verify any potential impacts of NI 1.634/16 for their specific situation.
Among the few exceptions of the final beneficiary rule are:
- Publicly-held companies domiciled in Brazil or in jurisdictions that require public disclosure of relevant shareholders, and are not legally considered as tax havens;
- certain non-profit entities;
- multilateral organisations;
- government agencies;
- pension funds, and a few others.
The obligation to comply with NI 1.634/16 begins on January 1 2017 for entities not yet registered on the CNPJ. For all other cases, the necessary information must be disclosed upon the next CNPJ registry update no longer than December 31, 2018. Failure to comply with these rules will result in the suspension of the CNPJ registry.
This article was prepared by Luiz Felipe Centano Ferraz, partner at Mattos Filho, International Tax Review's tax disputes correspondent in Brazil.