Month: November 2016

As an importer operating in Brazil you know how pricey bringing goods into the Country is, particularly in times of economic recession. So even a little saving on tax or custom duties adds up in the end and can make a big difference in competitiveness for your imports.

If you are also somewhat familiar with the Brazilian legal system and business environment, you are probably aware that, often, such savings only can be achieved by means of lawsuits, which usually involve complex and time consuming litigation, full of back and forths.

This is the case with the tariff that applies for using SISCOMEX (Sistema Integrado de Comércio Exterior), which is the electronic system put in place by the IRS to control the flow of the international trade. The SISCOMEX’s tariff was enacted by Article 3rd of Law no.# 9,716/98 and used to be charged at a fix amount of BRL 30.00 for each import license (Declaração de Importação – DI), and BRL 10.00 for each good added to an existing import license (DI) submitted through SISCOMEX.

However, ever since the issuance of the Ordinance no.# 257/2011 and the Normative ruling no# 1,158/2011, the tariffs were increased by a staggering 500%, to BRL 185.00 for each import license (DI) and BRL 29.50 for each good added to an import license (DI).

It turns out that this dramatic increase in the tariffs did not consider the “variation of the operation costs and investments made on the SISCOMEX’s system”, which, according to the law, shall conduct the updates in the amounts of the tariff.

The increase in the SISCOMEX’s tariffs was actually a disguised attempt by the IRS at creating new taxes without tax jurisdiction, which violates the Legality Principle encompassed by the Federal Constitution. Among other legal reasons, this Principle has been invoked by local Courts in order to bar the increase in the SISCOMEX’s tariffs, showing signs that the matter will definitely be settled in favor of taxpayers.

After 5 years of judicial battles, the Brazilian Highest Court of Justice (STJ) has finally acknowledged that the increase of SISCOMEX’s tariffs in 2011 was illegal, allowing the importers to pay the tariffs at the amounts provided by the legislation prior to the issuance of the Ordinance no.# 257/2011 and the Normative ruling no# 1,158/2011, as well as to recover the differences overpaid in the last 5 years.

This decision issued by STJ, though, does not have erga omnes effects, which means that each importer must file a specific, individual lawsuit in order to benefit from the decision, unleashing a torrent of lawsuits brought by importers seeking to save on costs in connection with their imports.

The lawsuit seems to be a good alternative right now, mainly because: (1) with the recent STJ’s precedent on the matter (RESP no# 1613402), the chances of obtaining an injunction that immediately relieves the importer of paying the illegal tariffs are higher, thus anticipating the final outcome of the lawsuit; (2) The Brazilian Supreme Court (STF) has already stated that the final word in the matter belongs to the STJ; (3) considering that there is currently a myriad of lawsuits related to the subject, the STJ might, at any time, apply the so-called ‘precedents regime’ (Article 927, 3rd Paragraph of the Code of Civil Procedure – CPC), in order to restrict the recovery of overpayments to lawsuits brought by importers before a deadline.

Therefore, we believe that, for all the importers affected, it is worthwhile filing a lawsuit as soon as possible.

On the 24th of October 2016, Brazilian tax authorities have issued a ruling (ADI/RFB 7/2016) determining the levy of Withholding Income Tax (WHT) and Contribution of Intervention on the Public Domain (CIDE), at respective rates of 15% and 10%, upon the payment into share capital of Brazilian companies with intangibles, such as technology (know-how), software and trademark, when made by non-residents.
 
Important to note that this ruling consists of a change on the authorities’ past understating, which used to consider these types of capitalization as exempt from any sort of taxation.
 
Thus, this sudden alteration of interpretation by the tax authorities reflects the volatility of the Brazilian tax legislation and could cause a negative impact on the inflow of technology into the country and also of foreign investment in general terms, which, on the contrary, should be deeply incentivized, for obvious reasons.
 
Additionally, in our opinion, this taxation lacks legal grounds, once the Brazilian tax legislation determines the levy of WHT and CIDE only upon the remuneration and acquisition of foreign technology, but never upon capitalizations, which is a reason why, if the taxpayer wants to avoid risks of challenge, we strongly encourage a preventive discussion before Judicial courts, with solid chances of success, so that the technology could be paid up into the local company’s share capital without any taxation.