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Brazil’s tax authority provides clarity on business tax matters

The Brazilian tax authorities (RFB, under its Portuguese acronym) issued Normative Instructions (NIs) and a tax ruling in recent months that will help companies operating cross-border to understand the authorities' position.

Fernando GiacobboRuben Gottberg

Disclosure of Brazilian tax rulings under the information exchange mechanism

The RFB issued Normative Instruction (NI) n. 1,689, regarding the compulsory exchange of information on tax rulings.

In 2013, the RFB issued NI n. 1396, allowing interested parties to submit consultations in relation to tax legislation, foreign trade and classification of services (tax rulings).

After a public consultation process, the RFB issued NI n. 1,689/2017 on February 20 2017 (amending NI n. 1396), in order to align its tax ruling process with the guidance of the OECD's BEPS Project.

According to NI n. 1,689/2017, the party interested in requesting a tax ruling on transfer pricing, permanent establishment or the programme for the support and development of the technological industry of semiconductors (PADIS), will be required to identify:

  • Its direct and ultimate controlling entities, including their domicile;
  • The residence country of the group entities involved in transactions covered by the tax ruling; and
  • The residence country of both the group headquarters and permanent establishment covered by the ruling.

A summary of the tax ruling will be exchanged with the tax administrations of the jurisdictions where the direct and ultimate controlling entities of the party requesting the tax ruling are domiciled, provided that Brazil has an agreement on exchange of information in place with the said countries.

Multinationals should monitor these changes when requesting/renewing tax rulings.

Brazilian tax authorities issue tax ruling on non-resident capital gains upon substitution of shares

The RFB issued tax ruling 88/2017 on January 25 2017, confirming that substitutions of shares (incorporação de ações) trigger taxes on non-resident capital gains.

Under Brazilian legislation, a substitution of shares is a transaction where the whole share capital of a Brazilian entity is transferred into the equity of another Brazilian entity. As result of this, the latter becomes the shareholder of the former (new shareholder).

Through the years, there has been debate as to whether the alienation of a transferring entity's shares is actually made by the shareholders. In some cases, administrative decisions have confirmed that the alienation has been made by the shareholders, whereas, in other instances, the decisions conclude that the alienation has been made by the transferring entity itself.

In order to address this issue, the RFB recently issued Normative Instruction (NI) 1,664/2016, establishing that this transaction should be viewed as an alienation made by the shareholder and that the new shareholder (i.e. the acquirer of the company) is the party responsible for withholding income taxes on eventual non-resident capital gains.

In line with the above, tax ruling 88/2017 confirms that the new shareholder is responsible for withholding income taxes and that non-resident capital gains should be determined by comparing the acquisition cost and the transaction value (net equity of the company).

Although this tax ruling does not hold a legal status, it confirms the RFB's position regarding the substitutions of shares.

Disclosure of final beneficiaries in the Brazilian corporate taxpayer register

The Brazilian tax authorities issued NI n. 1,684/2016 on December 29 2016, which postpones the starting date to disclose information related to final beneficiaries in the Brazilian corporate taxpayer register (CNPJ) to July 2017.

As a background, NI 1,634, issued by the Brazilian tax authorities in May 2016, established the obligation to disclose information related to final beneficiaries of Brazilian companies in the CNPJ.

According to NI 1,634, the term "final beneficiaries" refers to:

  • An individual who ultimately, either directly or indirectly, holds, controls or significantly influences an entity; or
  • An individual on whose behalf a transaction is undertaken.

A shareholder is deemed to have significant influence if they:

  • Directly or indirectly own more than 25% of the entity's capital stock; or
  • Have the ability to influence the decision-making and elect or appoint members of the entity's management.

It should be noted that legal entities, among others, set up as listed companies in Brazil, or in jurisdictions that impose the public disclosure of information of relevant shareholders, as well as non-profit entities, are not required to comply with this obligation unless the entities were located in tax havens or privileged tax regimes under the Brazilian tax legislation.

Although the disclosure of the final beneficiaries was initially set to start on January 1 2017, NI 1,684/2016 has postponed the general starting date to July 1 2017. As an exception, companies registered in Brazil before July 1 2017 will have until December 31 2018 to comply with the disclosure obligation. However, if a Brazilian company updates its CNPJ before December 31 2018 for any other reason, the disclosure obligation will arise at the date of such changes.

Fernando Giacobbo ( and Ruben Gottberg (

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