Argentina and Brazil signed an amending protocol to the, Argentina – Brazil Income Tax Treaty of 1980 on 21st July 2017. The protocol sets out maximum levels of taxation at source in specific categories of income; modifies the method to avoid double taxation in Argentina, and inserts a capital gains article into the treaty.
Normative Instruction 1,722/2017 published in Brazil’s Official Gazette on 17th July 2017 amends Normative Instruction 1,681/2016 relating to guidance on CbC reporting. According to NI 1,722/2017, transitional provisions apply if a legal entity which is resident in Brazil for tax purposes and which is not the ultimate controlling company of a multinational group has not designated a substitute entity for filing the CbC report on behalf of the group.
Under the transitional mechanism the tax authorities would accept a notification that the ultimate controlling company of the multinational group is located in a jurisdiction that has no competent authority agreement for the automatic exchange of CbC reports in force with Brazil; or that it has a competent authority agreement for the automatic exchange of CbC reports in force with Brazil that is in force for years beginning from 1 January 2017.
In the latter case the Brazilian entity could be required to file a CbC report within a deadline of sixty days if the competent authority agreement is not implemented (retroactively to 1 January 2017) by 31 December 2017; or if the other jurisdiction requires a CbC report from one or more entities whose ultimate parent company is tax resident in Brazil.
According to an IRS announcement on its website, the competent authorities of U.S. and the Brazil have concluded an arrangement on the exchange of Country-by-Country Reports. The competent authority arrangement (CAA) for exchange of country-by-country reports is on the basis of a tax information exchange agreement (TIEA). The agreement was signed on 20 July 2017.
Under the arrangement, both countries intend to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions. The country-by-country report is an annual report filed by large multinational groups to be used by tax administrations. The CbC report is one element of a standardized approach to transfer pricing documentation with a view to assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis.
The report includes information regarding the group’s activities in each country in which it operates, including, revenue, and profit before tax, taxes paid, taxes accrued, number of employees, and other information on economic activity.
Brazil has recently inaugurated a consultation on proposals for new customs action plans. On a new website the tax authority plans to integrate all processing and data for its foreign trade operations and make the export process easier. Responses to the consultation must be received by 24th July through the Inland Revenue website.
The tax authority of Brazil has issued COSIT Consultation Response no. 62/2017 (Solução de Consulta n. 62/2017) setting out views of the General Office to Coordinate Taxation (COSIT) on tax rates applicable to reinsurers.
The Consultation Response covers some controversial points of legislation, such as the classification, for fiscal purposes, of the activity of reinsurance as the provision of a service; and classification of a representative office of a reinsurer as a permanent establishment in Brazil.
The COSIT considers that reinsurers are subject to the same rules as insurance companies so local reinsurers incorporated in Brazil are subject to the corporate income tax (IRPJ) and the social contribution on net income (CSLL), both calculated under the actual profit method and imposed at a combined rate of 45%. The Consultation Response also clarifies that the gross revenue of reinsurers is subject to welfare contributions at a rate of 0.65% for the PIS/Pasep and a rate of 4% for COFINS.
Brazil has published Private Ruling 316 of 20 June 2017 on royalty and technical service payments and payments for services under cost sharing agreements. The ruling explicates the accountabilities for social security contributions (PIS/COFINS) on technical service and technical support payments to non-residents in connection with royalty payments. According to the ruling, royalty payments on their own are not subject to PIS/COFINS, but technical service payments are.
On 31st May 2017 the Federal Government published Provisional Measure No. 783, which established the Special Tax Regularization Program (PERT). Under the program’s rules, taxpayers may settle debts with the Federal Revenue Service and the Attorney General of the National Treasury, due by April 30, 2017.
Membership of PERT may be made through a request to be made by August 31 of 2017 and will cover debts indicated by the taxable person, in the condition of taxpayer or responsible, even if they are in administrative or judicial discussion, as long as the taxpayer has previously withdrawn from the litigation. Likewise, the taxpayer may include in this program debts that have already been included in other installments.
The PERT allows the taxpayer to opt for one of four modalities:
- Exclusively for debits in the Revenue, the taxpayer can choose the cash payment, with a minimum of 20% of entry and the remainder to be paid with credits of tax loss and Base of Negative Calculation of the Social Contribution on the Net Income (CSLL).
- For debts in the Revenue and in the Attorney of the National Treasury, the option may be by installment in 120 installments, without reductions, being:
- 4% of the debt in installments 1 to 12;
- 5% of the debt in installments 13 to 24;
- 6% of the debt in installments 25 to 36;
- Installment of the remaining balance 84 times, as of the 37th month.
- Also for debts in the Revenue and in the Office of the Attorney General of the National Treasury, an option can be made for the payment of 20% in 2017, in 5 installments, without reductions, and the remainder under one of the following conditions:
- Discharge in January 2018, in a single installment, with reductions of 90% interest and 50% of fines; or
- Installments in up to 145 installments, with reductions of 80% of interest and 40% of fines; or
- Installments in up to 175 installments, with reductions of 50% of interest and 25% of fines, with installments corresponding to 1% of the gross revenue of the previous month, not lower than 1/175.
- Finally, for debts of less than R $ 15 million under the Revenue and the Attorney of the National Treasury, the taxpayer may choose to pay 7.5% in 2017, in 5 installments, without deductions, and the remainder to be paid Under one of the following conditions, with cumulative use, in this order, of reductions in additions and the utilization of credits:
- Payment in full in January 2018, with reductions of 90% interest and 50% of the fines and use of credits of Tax Loss and Negative Calculation Base or other own tax credits administered by the Internal Revenue Service; or
- Installments in up to 145 installments, with reductions of 80% of interest and 40% of fines and use of credits of Tax Loss and Negative Calculation Base or other tax credits managed by the Federal Revenue Service; or
- Installments in up to 175 installments, with installments corresponding to 1% of the gross revenue of the previous month, not less than 1/175, with reductions of 50% of interest and 25% of fines and use of credits of Tax Loss and Base of Negative calculation or other own credits of taxes administered by the IRS.