Changes in the list of tax havens and new privileged tax regimes
Removal of Costa Rica, Madeira Island and Singapore from the list of tax havens and new privileged tax regimes
On December 26, 2017, the Federal Official Gazette (“DOU”) published Normative Instruction RFB 1,773, from December 21, 2017 (“IN 1,773/2017”), modifying Normative Instruction RFB 1,037, from June 4, 2010 (“IN 1,037/2010”), which in turn lists the countries or dependencies subject to favored taxation (i.e., the so called tax havens) and the privileged tax regimes.
Considering the changes brought by IN 1,037/2017, the following jurisdictions are no longer listed as tax havens:
In addition, while IN 1,773/2017 revoked the items from article 1 of IN 1,037/2010, which classified such jurisdictions as tax havens, there was also the inclusion of certain specific regimes of some branches of activity and/or regimes with differentiated tax rates from those jurisdictions in the list of privileged tax regimes under article 2 of the same IN 1,037/2010.
In short, the following regimes are now considered as privileged tax regimes:
a. Concessionary rate of tax for Finance and Treasury Centre;
b. Concessionary rate of tax for income derived from managing approved venture company;
c. Concessionary rate of tax for international growth company;
d. Concessionary rate of tax for several regimes related to maritime transport; etc.
It is worth mentioning that the removal of Costa Rica, Madeira Island and Singapore from the list of tax havens represent a significant change concerning the remittances from Brazil to recipients in those jurisdictions. Now, the applicable tax rate of the Brazilian withholding income tax (“IRRF”) over the value of the remittances will be, in most cases, of 15% – and no longer of 25% as in the remittances to tax havens.
It is also important to note that the transactions undertaken with entities subject to privileged tax regimes must observe transfer pricing rules regardless of any corporate relation between the parties, besides being subject to stricter rules and limits of interest deductibility (thin capitalization) and payments in general.
Lastly, there are also adverse tax consequences to Brazilian multinationals investing abroad in legal entities subject to privileged tax regimes, such as: a) the prohibition of the consolidation of results; b) impossibility of taxing the profits of affiliated companies under the cash basis regime; c) prohibition of deduction of presumed tax credits in the amount of up to 9% (nine per cent); and so on.
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