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Brazil implements disclosure mechanism in the context of BEPS Action Plan 12

Following the trends of countries such as Spain and Mexico, among others, Brazil has begun to amend and introduce new legislation to reflect BEPS recommendations in its internal legislation.

Provisional Measure (PM) 685 was issued this month, determining a disclosure procedure as a result of BEPS Action Plan 12 (Mandatory Disclosure Rules).

PMs are presidential acts that take effect as ordinary law from the date of publication, but are then subject to congressional approval/amendment/rejection on a priority basis, within 60 days, renewable for another 60 days.

According to PM 685, the acts in the previous calendar-year involving transactions that result in tax suppression, reduction or deferral, must be declared by the taxpayer to the Federal Revenue Secretariat (RFB) by September 30 of each year, when: i) the acts do not involve relevant non-tax motivations (no business purpose); ii) the form chosen is not the usual one, uses an indirect contractual transaction or contains provision that modify, even partially, the effects of a typical contract (step-transaction doctrine); or iii) when involving contractual transactions listed in a resolution by the RFB.

The declaration shall not have the effect of a formal consultation (art. 8), the response to which has binding effect on the taxpayer.

Should the RFB not agree with the act or contractual transaction disclosed, the taxpayer will be summoned to pay (upfront or in installments), within 30 days, the amount of tax due, including interest but without fines (art. 9).

The form and procedures will be regulated in a specific resolution, to be issued by the RFB (art. 10).

Any declaration that contains false information, omissions, presented by a person extraneous to the fact or including a fraudulent interposition of companies or individuals, will be deemed ineffective (art. 11).

Failure to present the declaration or incurring one of the mentioned situations will characterize willful misconduct of the taxpayer, aiming to evade taxation or commit fraud, and will be subject to an aggravated fine of 150% of the tax not paid.

In the Brazilian administrative and judicial spheres, the tax authorities have frequently been disallowing acts based on the business purpose or step-transaction doctrines, with a relevant amount of success in assessments.

This movement increased, to some extent, when the Brazilian General Anti-Avoidance Rule was not converted into law, after being introduced by a PM in 2002 (PM 66).

Also, the current political scenario in the country indicates that the battle to approve the provisional measure may be a tough one. Therefore, this attempt to oblige taxpayers to disclose tax-driven planning may be extremely complicated to put effectively into force.

By André Gomes de Oliveira and Francisco Lisboa Moreira of CBSG

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