Anni Varanda, Autor em GSGA

Brazilian Tax Review – July 2020

Posted on 1 de July de 2020 by Anni Varanda

Brazilian Government Grants New Tax Breaks to Mitigate the COVID-19 Crisis

Due to the continued state of public emergency in Brazil, the Federal Government has granted several tax breaks to mitigate the economic effects of the COVID-19 pandemic, including:

Postponement of Social contribution tax (“PIS, Cofins, INSS, CPRB and Funrural”) payments for May 2020, normally due in June 2020, to November 2020.

Import Duty (“II”) exemption for some goods, such as medicines, medical gloves and surgical masks, among others, until September 2020.

Social contribution tax (“PIS and Cofins”) exemption for medicines with HS Codes 3003.90.99 and 3004.90.99 until October 2020.

Federal-VAT (“IPI”) exemption for clinical thermometers with HS Code 9025.19.90 until October 2020.

Tax on Financial Transactions (“IOF-Crédito”) exemption for loans (i) made through the Funding Authority for Studies and Projects (FINEP), or by its financial agents with FINEP funds; (ii) to finance logistics infrastructure projects for roads and railroads through a federal government concession; and (iii) contracted for by the Electric Energy Trading Chamber (“CCEE”), intended to cover, in whole or in part, deficits and the anticipation of revenue, incurred by the concessionaires and permit holders for public utility electricity distribution. This exemption is applicable to taxable events occurring up to December 31, 2020.

Extraordinary installment plan for tax debits, in order to mitigate the economic effects of the COVID-19 pandemic. This special plan gives taxpayers the right to pay federal tax debts with benefits, such as reduced entry, discounts and special terms

Supreme Court Held that ISS Tax Applies to Franchising Agreements and Betting Services

The Federal Supreme Court in Brazil (“STF”) recently issued two important decisions dealing with municipal Services Tax (ISS) taxable events.

The first one deals with the incidence of this tax on franchising agreements, which, in Brazil, usually include the right to distribute products and services, technical assistance, raw material acquisition, employees training and assignment of the brand’s use, among other obligations. In this case, the court held that franchising agreements are hybrid in nature and are subject to the ISS tax.

Another important decision by the STF refers to levying the ISS tax on betting activities. According to the Supreme Court, the incidence of the ISS tax on distribution services is constitutional and covers the sale of tickets and other lottery products, bingo cards, bets or coupons, sweepstakes and prizes, since gaming activity is classified as a service for ISS purposes.

Based on the decisions above, the Brazilian Supreme Court has been adopting a broader definition of service for tax purposes, which could affect other, similar cases in the future.

The Supreme Court Begins Analyzing the IPI Tax on the Resale of Imported Products

In a tax dispute worth billions, the Supreme Court began analyzing the incidence of the Federal-VAT (“IPI”) on the resale of imported products in June 2020.

So far, Justice Marco Aurélio has held that the tax should not be levied on the resale of imported products. However, the hearing was suspended, due to a request for analysis by Justice Alexandre de Moraes, and there is so far no determination of when the hearing will be resumed.

STJ Applies GATT Provisions to Embed Service’s Costs in the Import Duty Calculation Basis

The Superior Court of Justice held that services related to the handling of goods in ports (such as loading and unloading) must be included in the Import Duty (“II”) calculation basis.

According to the Court, the General Agreement on Tariffs and Trade (“GATT”) provides for the inclusion of expenses related to loading, unloading and handling, and the associated transportation of imported goods to the port or place of import, in the customs value.

The Court’s holding means that the services are included in the calculation of the customs value and are part of the Import Duty calculation basis since these activities are done inside the port or at a customs border crossing.

Draft Bills Propose Digital Services Taxes for Big Tech Companies

In May 2020, a draft bill was presented in Congress to create a Contribution for Intervention in the Economic Domain applicable to big tech companies (so-called “Cide-Digital”). The new tax would be similar to the digital services taxes (“DST”) introduced by other countries, especially in Europe.

Cide-Digital is proposed to be levied progressively, at a 1% rate on amounts up to BRL 150 million; 3% on amounts exceeding BRL 150 million and under BRL 300 million; and 5% on amounts exceeding BRL 300 million.

Additionally, the Senate proposed another bill to establish a differentiated system for the Social Contribution to Social Security (“Cofins”) tax levied on the companies that earn high revenues by means of digital platforms.

Both bills still must be discussed and approved by Congress, in different voting rounds, and be sanctioned by the president.

Extinction of the “Casting Vote” Grants Taxpayers the Right of a New Trial in the Federal Administrative Tax Tribunal

A recent law eliminated the so-called “casting vote” in the Federal Administrative Tax Tribunal, which was a tiebreaking vote by a representative of the tax authorities, in case of a tie vote between tax authorities and taxpayer’s representatives.

Because of this, the Federal Court of Rio de Janeiro granted a Brazilian company the right to a new trial at the Federal Administrative Tax Tribunal level after it lost a dispute with the IRS due to the so-called “casting vote”.

Brazilian taxpayers expect more decisions like this to be issued by the courts and many tax assessments could be reviewed if the courts apply the new law retroactively.

STF Allows the Issuance of Court Orders to Settle Undisputed Parts of a Lawsuit Before the Final Decision

In the specific case of a citizen who legally claimed compensation from the government due to a traffic accident, the Supreme Court held that it is constitutional to issue court orders for the payment of undisputed and autonomous parts of the judicial debt before the final and unappealable decision.

The decision was issued in a judgment of an appeal with general repercussion, meaning that this holding must be adopted in the decisions of all other courts. Additionally, this holding will apply to tax disputes.

STJ Defines its Position on Monetary Correction by Selic on PIS and COFINS Tax Refund

The Superior Court of Justice (“STJ”) held that the PIS and COFINS tax refunds must be adjusted by the Selic interest rate, after a 360-day period from the filing of the refund form, if the authorities do not take a position regarding the refund during that period.

This decision was issued in a trial under the repetitive appeal system, meaning that this holding must be followed in other court decisions.

Supreme Court Ends a Long Dispute Regarding which State Should Charge the ICMS Due on Imports

The Supreme Court held that the ICMS tax on imports should be paid to the state where the legal recipient is established, even if customs clearance occurred in a different state.

The decision analyzed three of the most common import structures: (i) direct import – in which the legal recipient is also the importer; (ii) import on behalf of third parties – the importer (trading company) is responsible for importing the goods on behalf of the legal recipient; and (iii) import on demand – the importer (trading company) buys the imported goods with its own funds, and, by doing so, acts as legal recipient to later sell the goods to a predetermined buyer.

In situations (i) and (ii), the Import-ICMS is owed to the states where the final recipient is established. In situation (iii), however, the tax is due to the state where the importer is established.

Brazilian Tax Review – April 2020

Posted on 24 de April de 202024 de April de 2020 by Anni Varanda

Brazilian Government Gives Several Tax Breaks to Mitigate the Covid-19 Crisis

Due to the health crisis arising from the COVID-19 pandemic, the Federal Government decreed a state of public calamity in Brazil and most governors and mayors ordered “non-essential activities” to be shut down.

In an effort to mitigate the economic effects of these measures, the Federal Government given several tax breaks:

Decree 10,285/2020: exempts medical and hospital products from the Federal-VAT (“IPI”) until October of 2020.

Decree 10,302/2020: exempts laboratory and pharmacy articles, gloves and clinical thermometers products from the Federal-VAT (“IPI”) until September of 2020.

CAMEX Normative Ruling 17/2020: exempts goods such as alcohol, disinfectant, medical gloves and surgery masks, among others, from the Import Duty (“II”) until September of 2020.

RFB Normative Ruling 1,927/2020 and CAMEX Normative Ruling 17/2020: simplifies the importation of some goods related to mitigating the health crisis.

Decree 10,305/2020: exempts loans taken out between April 3 and July 3, 2020, from the Tax on Financial Transactions (“IOF-Crédito”).

Provisional Measure 932/2020: reduces third sector contribution taxes (“S System”) by 50% until July 2020.

Provisional Measure 927/2020: postpones the FGTS payments related to the months of March, April and May 2020, normally due in April, May and June 2020, respectively, to July 2020.

Ministry of Economy Normative Ruling 139/2020: postpones the payment of Social Contributions (“PIS, Cofins, INSS, CPRB and FUNRURAL”) related to March and April 2020, normally due in April and May 2020, respectively, to August and October of 2020.

Normative Ruling RFB 1,930/2020: extends the annual tax return submission deadline to June 30, 2020, instead of April 30, 2020, when it would normally be due.

Normative Ruling RFB 1,932/2020: extends the deadline to submit the DCTF federal return and the EFD-Contribuições to July 2020, instead of the normal deadline of April, May and June 2020.

All these tax breaks are temporary and are expected to be phased out at the end of the pandemic.

Federal and States Governments Extend the Deadlines to Enforce Overdue Liabilities Certificates

Based on Ministry of Economy Normative Ruling 103/2020, National Treasury Attorney’s Office (“PGFN”) Normative Ruling 7,821/2020 and Regulation 543/2020, the deadlines to enforce federal tax debts included in Overdue Liabilities Certificates are extended for 90 days, from March 18, 2020, onwards.

In addition, from March 21, 2020, São Paulo State authorities cannot protest Overdue Liabilities Certificates for 90 days. Rio de Janeiro State authorities are prevented from protesting these instruments for 60 days, starting on March 24, 2020.

Once the suspension periods have run, the federal and state authorities will be allowed to enforce the Overdue Liabilities Certificates normally if the deadlines are not amended due to the continuation of the crisis.

Lawful Taxpayer Program’s Adhesion Deadline is Postponed

The Brazilian Government has launched the “Lawful Taxpayer” Program with Provisional Measure 899/2019, providing regulations for taxpayers and tax authorities to negotiate terms for the settlement of outstanding federal tax debts.

The application deadline for this program was originally March 25, 2020, but has now been extended to June 30, 2020.

Debt Clearance Certificates’ Expiration Dates are Extended

The National Treasury Attorney General’s Office and the IRS have extended the validity of debt clearance certificates related to Federal Taxes for an additional 90 days. This measure applies to debt clearance certificates that were valid on March 24, 2020.

E-Digital Project Moves Forward

The Federal Government issued Decree 10,278/2020, which regulates the so-called Brazilian Digital Transformation Strategy (E-Digital), launched by the “Economic Freedom Act,” which establishes the right to use, transmit and file any microfilmed or digitalized document with the same standing and legal validity as the physical document.

The decree standardizes the technical and legal requirements for digitizing analog material and submitting private and public documents signed and certified under Brazilian public-key infrastructure standards.

Brazil: Shareholders general meetings for financials’ approval postponed

Posted on 31 de March de 202031 de March de 2020 by Anni Varanda

On March 30, 2020, the federal government published the Provisional Measure (“Medida Provisória”) nº 931/20 enacting some new rules on the above matter through amendments to the Civil Code, the Corporation law, the regulation of cooperatives among other Brazilian laws.

In view of the business activity’s slowdown and the forced self-isolation caused by Covid19’s crisis, the government decided to allow Brazilian corporations (“sociedades anônimas”) and limited liability companies (“sociedades limitadas”) to postpone their annual shareholders general meetings seeking the approval of 2019’s financials. In many cases (ie, when the company’s fiscal year ended in December 31, 2019), this annual general meeting was supposed to take place until the end of April 2020.

In this sense, the new rule – that is enforceable immediately – introduced some extraordinary provisions that may be summarized below.

1. For Brazilian corporations (“Sociedades Anônimas”) – including listed corporations – whose fiscal year ended from December 31, 2019 to March 31, 2020

Exceptionally, the Shareholders General Meeting for the approval of the annual financials (and other matters) may be held within 7 months counted from the end of their respective fiscal year (instead of 4 months).
The terms of office of the statutory officers or Board members whose mandate is about to expire is extended until the date of the postponed Shareholders General Meeting or when it is the case, the Board of Directors’ meeting.
Except in a case where the bylaws expressly provide otherwise, the Board of Director may decide on urgent matters normally restricted to the Shareholders General Meeting’s approval, being these decisions subject to confirmation via referendum.
Until a Shareholders General Meeting is held, the Board of Directors or the Board of Officers may decide to have dividends paid, even if the respective company’s bylaw states otherwise.
The regulatory deadlines imposed by the Brazilian SEC (“CVM”) may be postponed. Note that on March 31, 2020, CVM published Ruling (“Deliberação”) CVM 849 on this matter.

2. Limited liability companies (“sociedades limitadas”) whose fiscal year ended from December 31, 2019 to March 31, 2020:

Exceptionally, the Quotaholders General Meeting for the approval of the annual financials may be held within 7 months counted from the end of their respective fiscal year.
The terms of office of the statutory officers or Board members whose mandate is about to expire is extended until the date of the postponed Quotaholders General Meeting.

3. Limited liability companies (“sociedades limitadas”) whose fiscal

4. Other provisions:

The new rule also contemplates the deadlines to file documents for registration with the Commercial Registries (“Juntas Comerciais”) who are only realizing a part of their document registration duties.
It also allowed the possibility to have shareholders and quotaholders voting remotely in digital shareholders or quotaholders meetings.

Provisional Measure nº 931/20 is enforceable immediately but to be converted definitively into law, it must be approved by the Brazilian Congress within 90 days counted from March 30, 2020.

Q&A: The Impact of COVID-19 on Contractual Obligations

Posted on 27 de March de 202027 de March de 2020 by Anni Varanda

Our Corporate Partners prepared an informative material regarding some impacts of the COVID-19 pandemic on contracts. We clarify that the following questions were elaborated in a generic and comprehensive way, considering the Brazilian legal system (Civil Law). Therefore, our understanding may change according on the peculiarity of the practical case.

1. What are the consequences in cases of contractual default because of COVID-19? Can I be penalized?

First of all, we should clarify that the consequences of contractual default as a result of the pandemic caused by COVID-19 depends on the nature of the agreement. Let us focus here on the commercial relationships regulated by the Brazilian Civil Code. As a general rule, contractual default is regulated by article 475 of the Civil Code, which authorizes the damaged party to file for contractual termination, if not choosing to require compliance in addition to that, as well as indemnity for losses and damages.

This rule, however, accommodates exceptions, to wit: (i) Acts of God and Force Majeure, under article 393 of the Brazilian Civil Code; and (ii) in case of excessive burden (Change in Circumstances Theory – rebus sic stantibus), under article 478 of the Brazilian Civil Code.

The events mentioned above may, in our opinion, serve as a basis for discussion tending to relativize the gross imposition of contractual provisions that prove to be unfeasible under such conditions.

2. If I cannot pay installments from loan and financing agreements given the crisis involving COVID-19, is there something that could be done?

The Brazilian Courts are usually strict when applying the provisions related to Acts of God and Force Majeure and an excessive burden. Not rarely we face decisions that deny acknowledgment of Acts of God and Force Majeure to circumstances, for example, of future purchase and sale agreement of agricultural products, the planting of which is affected by some plague. It occurs because the Courts construe that the “plague” risk is inherent to the business and cannot be alleged as an exceptional and unpredictable event. Likewise, we have a similar interpretation as regards excessive burden. As an example, we refer to the agreements in foreign currency, in which the mere foreign exchange fluctuation to the detriment of one of the parties would not be an extraordinary, unpredictable event since, by nature, the foreign exchange invariably oscillates, this being a risk inherent to the business.

However, the situation we are in could have better luck. This is because, given the restriction measures to the circulation of assets and people, lockdown of commercial establishments, foreign exchange and market fluctuations given the pandemic (and here we stress the cause and effect relation), it is possible, to what it seems to us, to sustain the occurrence of Acts of God and Force Majeure and the consequent excessive burden. Use of one or the other institution shall be regulated by the existence of the default (Acts of God and Force Majeure) or the difficulty in the compliance (excessive burden).

Notwithstanding the previous considerations, we must clarify that each situation is unique and shall be timely reviewed.

3.What is the best alternative for the agreements which have become excessively burdensome given the consequences of COVID-19?

If the pandemic caused by COVID-19 is acknowledged as an extraordinary, unpredictable event, there shall be room for article 478 of the Brazilian Civil Code, which deals with the excessive burden, to be applied. After this clarification, except for the circumstance of an extrajudicial negotiation, by rule, recognition of the burden occurs by legal means, being able to have three (3) ramifications, to wit:

(i) in the continued or deferred enforcement agreements, if the provision of one of the parties becomes excessively burdensome, with extreme advantage to the other, the debtor may ask for contractual termination;

(ii) to avoid termination, the debtor may, as an alternative, propose to the counterparty, the contractual reinstatement to reestablish its balance; and

(iii) if in the agreement the obligations apply only to one of the parties, this may plead its provision to be reduced, or the way to enforce it to be changed, to avoid excessive burden as a result of COVID-19.

4.Is COVID-19 one of the causes of Acts of God and Force Majeure?

Considering the definition of Acts of God and Force Majeure brought in the remaining paragraph of article 393 of the Brazilian Civil Code, it is possible to assert that COVID-19, since its effects cannot be avoided or precluded, may be rated as Act of God and Force Majeure or else be the trigger for characterizing excessive burden.

5.I am going to be late in delivering a contractual obligation because of the crisis consequences, how can I mitigate the impacts and avoid penalties?

Article 422 of the Brazilian Civil Code determines that contractors’ parties are obliged to abide by, both upon conclusion of the agreement and in its enforcement, the honesty, and good faith principles. It means that, considering that COVID-19 fits, at first, the circumstance of Acts of God and Force Majeure and could preclude or even prevent compliance with specific requirements within the timeframes as covenanted, it is possible for the debtor, aware that delay shall occur in compliance with the requirement, to previously notify the counterparty, providing it with a new way to comply with the requirement or, else, rearrange the timeframes. It is essential to notice that the same rationale would apply, in theory, if the circumstance dealt with an excessive burden.

6.Can the price readjustment indices and terms as determined in the agreements be unilaterally amended given the consequences of COVID-19?

Considering that the contracts are bilateral agreements of the mutual will of the parties and, the comprise annual price readjustment rule, with the use of legally permitted indexes in Brazilian legislation to recompose the currency over time, such as INPC, IPCA, IGPM, etc., it is not reasonable for one of the parties to promote unilaterally, i.e., without the express agreement of the other contracting party, any change concerning the index and adjusted term, as well as failing to apply this adjustment unilaterally, due to the effects caused by COVID-19.

7.Is it possible to claim the revision of the contract price due to excessive burden resulting from the effects generated by COVID-19?

Given the effects caused by COVID-19, in cases where the obligation has become very burdensome, the creditor of the obligation may seek to pass on exceptional values to the other party at the contractually agreed price, for example, foreign exchange difference, etc. If there is no extrajudicial agreement on such transfer, it will be up to the obligation debtor to request the review in court seeking to restore the economic and financial balance of the agreement. In this case, we reiterate that the requirements for the review of contractual prices must be proven so that evidencing that such imbalance entails an excessive burden for the required performance of one of the contracting parties in comparison to the consideration received from the other party.

8.Can I terminate an agreement justified by the COVID-19 crisis?

As noted earlier, observing the peculiarities of the practical case, and depending on the impacts of the pandemic on a given contract, it can be invoked to “terminate” an agreement. However, the debtor of the obligation must substantiate its request in such a way as to show that the occurrence of the pandemic is a preclusion to the fulfillment of its obligation or is rendering the respective performance very costly.

9.For cases involving consumer law, what are the best measures that can be taken to minimize the impacts of the crisis?

Concerning consumer rights, we cannot rule out the circumstance of the prevalence of jurisdictional understanding by applying Force Majeure only for the benefit of the consumer and consider that, despite the impacts caused by COVID-19, the supplier had an obligation to comply the requirements assumed under the agreement. However, it is necessary to point out that the national courts in Brazil have never faced issues such as those that arise at a time when COVID-19 is imposing losses on all suppliers of goods and services due to the progress of the disease and the high rate of contagion.

In this case, despite the Brazilian consumerist code being silent on the subject, we understand that it is possible to rely on the provisions of the Civil Code and the general principles of law, also assuring to supplier’s protection of their rights and their business.

10.How are objective good faith and the duty to renegotiate agreements at this time?

As already mentioned above, for a contractual obligation to be breached or an agreement to be terminated from an inevitable, unforeseen or extraordinary event, that is, in times of crisis as we are living in COVID-19 times, the fact is not enough, it is necessary that the contractual obligation cannot be fulfilled to consider the debtor’s release due to Acts of God and Force Majeure, which can only be verified on a case-by-case basis. The same rationale applies in cases of excessive burden.

However, it should be noted that not even a severe event such as a global pandemic can, in general, declare that from now on, everyone is released from compliance with the contractual obligations assumed or that the contracts can be terminated or mandatorily revised. It is necessary to be very careful with directions of this nature in the abstract, especially those that can be invoked to support the breach of contracts and obligations arising from them during a crisis scenario.

The contractual good faith and the duty to renegotiate must be preserved in light of what affects the mandatory established relationship, and the event and the economic chaos that emerges should not be factors that only made the signed contract uninteresting from the negotiating point of view.

Even in cases where the contracts are economically affected, it is crucial to think of alternative solutions to preserve the established legal relations and the fulfillment of obligations, so that there is real social solidarity, ensuring cooperation and loyalty between the parties.

Only then, considering the termination of contractual ties and judicial review of contracts in extremely urgent and unavoidable situations, given the restricted functioning of our judiciary, will we be able to not submerge in the crisis and not succumb to the pandemic in the business world as well.

Brazilian Tax Review – February 2020

Posted on 28 de February de 2020 by Anni Varanda

The Supreme Court Criminalizes the Non-Payment of ICMS Tax

The Supreme Court reached a majority decision to criminalize the non-payment of declared ICMS tax.

According to the court, since the ICMS is an indirect tax, the seller of goods (who pays the ICMS) is reimbursed the tax amount by transferring the charge to the buyer. Thus, the person that actually pays the tax is not the one who bears the financial burden.

For this reason, the Supreme Court held that, if the seller does not pay the ICMS tax included in the price of the goods and itemized in the tax invoice, this conduct will be considered misappropriation.

Notwithstanding, the Supreme Court held that only a seller who consistently and with intent to appropriate fails to pay the ICMS charged to the consumer who purchased the goods will be criminally punished.

Joint Project between the OECD and Brazil’s IRS Issues the First Report on Transfer Pricing in Brazil

In February of 2018, the OECD and Brazil’s IRS launched a joint project to examine the similarities and divergences between the Brazilian and the OECD transfer pricing approaches.

In December of 2019, the joint project issued its first report, which also explores options for Brazil to converge with OECD transfer pricing standards while enhancing the positive attributes of the existing framework.

Now, Brazil has identified a clear pathway for bringing its existing transfer pricing frameworks into alignment with the international consensus and is weighing two options – immediate or gradual implementation.

Brazilian Senate Discusses Bill that Reintroduces Dividend Taxation

A bill under discussion in the Senate would implement a 15% income tax on dividends distributed by Brazilian companies to their shareholders. For beneficiaries resident in tax havens or countries with favorable taxation, the tax rate would be increased to 25%.

The bill was presented to the Economic Affairs Committee of the Senate, where it must be approved. Afterwards, the bill must be approved by the Senate and the Chamber of Deputies before the presidential approval.

Brazil and Paraguay Sign an Automotive Free Trade Agreement

Brazil and Paraguay have signed an agreement that parts and vehicles sold by the two countries will have minimum or zero tariffs.

Paraguayan automotive products, parts and vehicles will have immediate free trade in Brazil. On the other hand, Brazilian products will be taxed at up to 2% in Paraguay, with this taxation being gradually reduced, through the application of preference margins, until the full release of trade at the end of 2022.

The agreement must still be ratified by the Congress and implemented via a presidential decree.

Supreme Court Held that Tax Immunity Covers Export of Products through Trading Companies

The Supreme Court decided for the tax immunity of products exported through trading companies in order to declare the impossibility of levying the PIS and COFINS taxes on these transactions.

The court held that it is not possible to make a tax differentiation between direct sales abroad and indirect exports. According to the decision, domestic sales aimed at the foreign market are, in essence, part of the export itself, and the fact that they occur within Brazil and among Brazilian trading companies does not eliminate the idea of exportation from its economic purpose.

Consequently, these transactions can be equated with an export for tax purposes and are not subject to the PIS and COFINS taxes.

Transportation and Fuel Vouchers or Similar are not Subject to Social Security Contributions

The Brazilian IRS clarified that there are no social security contribution charges on the amounts paid as transportation vouchers, through fuel vouchers or similar. The non-incidence of the contribution is limited to the amount equivalent to what is strictly necessary for the cost of commuting from home to work and vice versa, in public transport.

The employer is entitled to discount only the portion that exceeds 6% of the employee’s basic salary. If the employer fails to discount this percentage of the employee’s salary, or discount a lower percentage, the difference should be considered indirect salary and will be subject to social security contributions and other taxes.

The National Treasury Attorney’s Office Launches an App to Consult Unpaid Debts with the Federal Government

The Attorney General’s Office of the National Treasury launched an application called “Unpaid Debt” that allows citizens to check the debts of companies and individuals with the federal government.

With the app, any citizen can check, through mobile devices (smartphones and tablets), which taxpayers have unpaid debts with the National Treasury and with the Service Guarantee Fund (FGTS).

In addition, the application allows consumers, from reading the QR Code of the invoices issued, to check if the company has active debts in an irregular situation.

It is important to note that debts in installments, guaranteed or with suspended liability are not shown when checking through the app.

Brazilian Tax Review – November 2019

Posted on 14 de November de 201914 de November de 2019 by Anni Varanda

Brazil’s IRS Issues New PIS and COFINS Regulations

Brazilian tax authorities published Normative Ruling 1,911/2019, regulating all tax legislation related to PIS and COFINS, including (i) calculation of the tax owed in the domestic market; (ii) non-cumulative credits; (iii) PIS/COFINS-Import; (iv) special methods for specific industries, such as financial institutions, insurers and reinsurers and agribusiness; (v) the concentrated taxation method; and (vi) special tax benefits, such as DRAWBACK, REPES, RECAP, REIDI and RETAERO.

For the calculation of PIS and COFINS non-cumulative credits, Normative Ruling 1,911/2019 adopted the concept of inputs defined by the Superior Court of Judgment, based on the criteria of the essentiality and relevance of the expenditures in the context of the company’s activity.

Regarding the exclusion of State-VAT (ICMS) from PIS and COFINS bases, allowed by the Brazilian Supreme Court, Normative Ruling 1,911/2019 has reiterated the position of Normative Opinion COSIT Nº 05/2018. In this sense, according to the tax authorities, the amount to be deducted from the PIS and COFINS bases is the ICMS effectively paid by the seller (tax owed net of the non-cumulative credits), and not the amount debited in the fiscal invoice. However, this restrictive opinion issued by the Brazilian tax authorities does not reflect the position of the Brazilian Supreme Court and the taxpayers will certainly challenge it.

Courts Held that Tax Credits Recovered Must Be Included in the Corporate Taxes Bases Only upon Their Offset

With the recovery of tax credits related to the exclusion of State-VAT (ICMS) from PIS and COFINS bases, Brazilian tax authorities have already taken the position that the credits recovered are subject to the corporate taxes (IRPJ and CSLL) upon the final court decision. However, because such decisions usually do not set a fixed amount to be recovered, the tax authorities accept the taxation when the credits are effectively calculated and booked in the companies’ financial statements.

However, some judicial decisions held that the credits’ legal or economic availability for the taxpayer occurs only upon the actual recovery (offset) of the credits, which means that such credits should be taxed only at that time. Nevertheless, this subject remains controversial and has not yet been settled in the Brazilian Superior Courts.

Brazilian Government Launches the “Lawful Taxpayer” Program

This measure authorizes federal tax authorities to reduce interest, penalties and charges by up to 50% of the total debts and allows payment in installments (up to 84 months). For small companies or individuals, the discount could reach 70%, with installments up to 100 months.

Provisional Measure 899/2019 must be converted into law within 60 days of its publication in order to remain applicable.

Brazil’s Economic Freedom Act Has Been Recently Approved

In the context of government reform, inaugurated by the Labor and Pension Reforms, the Brazilian Congress has recently converted Provisional Measure 881/2019 into Law 13,874/19, also known as the “Economic Freedom Act,” aiming to dismantle the bureaucracies imposed on Brazilian entrepreneurs.

From a tax perspective, the new legislation allows the electronic storage of private documents already stored in a government database and whose integrity has already been verified. Moreover, further regulation will specify some documentation that, even if uncertified, must be considered valid for tax audits.

CONFAZ Allows States to Release New ICMS Amnesty Programs

New ICMS Agreements issued by the Brazilian Finance Policy Council (“Confaz”) authorize some Brazilian states, such as São Paulo, Mato Grosso, Acre, Rondônia, Mato Grosso do Sul, Sergipe, Rio Grande do Sul, Minas Gerais, Alagoas and the Federal District, to waive or reduce penalties and interest related to ICMS debts.

Some states have already enacted rules to launch these programs.

Brazil-Switzerland Social Security Agreement Enters into Force

Decree 10,038/2019 has promulgated in Brazil the Social Security Agreement entered into with Switzerland. This agreement gives each country’s workers who are resident in the territory of the other country the opportunity to take advantage of the contribution periods in the two countries to obtain social security benefits.

Superior Court Held that Reintegra Credits Are Not Taxed by the Corporate Taxes

“Reintegra” is a Brazilian tax benefit aiming at promoting exports of manufactured goods through tax credits to exporters. In this regard, the Superior Court of Justice held that “Reintegra” credits are not considered income and, for this reason, are not included in the corporate taxes (IRPJ and CSLL) bases.

Even though the Superior Court of Justice has held against taxpayers on this matter before, this new decision is an important precedent, which might indicate a new position for future cases.

Brazilian Tax Review – August of 2019

Posted on 26 de August de 201926 de August de 2019 by Anni Varanda

Mercosur-EU Free Trade Agreement Moves Forward

After 20 years of negotiations, the European Union and Mercosur have moved forward with the free trade agreement between the two blocs.

The agreement provides for international standards for transparency rules, increases access and competition in government purchases and provides efficiency and cost reductions for imports and exports.

The draft document is still subject to a legal review, translation to all participants’ official languages and final signature by the two blocs. Afterwards, the final document will be ready for parliamentary approval in each country-member of the EU and Mercosur.

New Reporting Guidelines for Cryptocurrency Transactions

Normative Ruling 1,888/2019 established that cryptocurrency transactions must be reported to the Brazilian IRS from August 1, 2019. However, reporting guidelines were still to be issued.

These guidelines were issued in the recent Normative Ruling 1,899/2019, which states that all cryptocurrency transactions (acquisition, sale or donation) must be submitted to the tax authorities via the Virtual Service Center (e-CAC) on a monthly basis, if the sum of these transactions exceeds BRL 30,000.00.

The obligation to report must be observed by all the cryptocurrency exchanges domiciled in Brazil and any Brazilian resident that performs transactions with non-residents or without the intermediation of an exchange. Non-compliance with the reporting requirements will result in high fines from the tax authorities.

San Marino is No Longer Blacklisted in Brazil

Normative Ruling 1,896/2019 has removed the Republic of San Marino from the Brazilian tax haven list.

This status modification will affect the determination of the withholding income tax rate on payments to San Marino residents, as well as the application of transfer pricing and thin capitalization rules in transactions between residents of Brazil and San Marino.

Amendment Protocols to the Denmark and Norway DTCs

The Decrees 9,851/2019 and 9,966/2019 have promulgated the amendment protocols to the Denmark and Norway Double Taxation Conventions with Brazil. These amendments modify several topics, such as withholding tax reductions to some specific incomes.

By means of these Decrees, the amendments to the DTCs were internalized in domestic legislation and became effective.

Equipment Rental from Israel is Subject to a 10% Withholding Income Tax in Brazil

Private Letter Ruling 216/2019 states that payments from Brazilian residents to Israeli residents, derived from the use of industrial equipment, are subject to a 10% withholding income tax in Brazil, rather than 15%.

The tax authorities stated that the rental fees must be classified as royalties under the Brazil-Israel DTC, applying a reduced withholding tax rate.

The reduced rate applies only when the Israeli beneficiary does not conduct the rental activities through a permanent establishment in Brazil.

Technical Services Rendered by Finnish Providers are not Subject to Withholding Income Tax

Private Letter Ruling 6,017/2019 states that remittances to residents of Finland for technical services are exempted from withholding income tax, due to article 7 of the Brazil-Finland Double Taxation Convention.

The exemption applies only when the Finnish beneficiary does not perform the activities through a permanent establishment in Brazil.

Debt Forgiveness from Non-Residents Is Subject to the Withholding Income Tax, Claims the IRS

Private Letter Ruling 210/2019 states that debt forgiveness from non-residents to Brazilian companies, related to interest derived from loans, is subject to a 15% withholding income tax.

In the specific case, the Brazilian company had accrued the interest expenses in its financial statements and reverted them to accumulated losses as a result of the debit forgiveness.

The tax authorities took the position that the triggering event for the withholding income tax is not only the income’s remittance or payment, but also the “use” of the income for other purposes.

This private letter ruling is very controversial and might be challenged by taxpayers in court.

IOF Exemption on Exports Applies Even if the Revenue is not Repatriated Immediately

Private Letter Ruling 231/2019 has changed the IRS’s position on the IOF exemption for export revenues, so as to observe Opinion 83/2019, issued by the Attorney General’s Office.

According to that opinion and the new private letter ruling, the IOF exemption applies to exports, even if the corresponding revenue is maintained in a foreign bank account, instead of being immediately transferred to Brazil. However, in order to take advantage of the exemption, the revenue must be repatriated within 750 days.

This new private letter ruling should put an end to court cases between taxpayers and tax authorities on this matter.

Administrative Tax Tribunal Has Canceled Customs Fine Applied to an Exporter for Hiding the Actual Acquirer

Brazilian law states that the use of a conduit person to hide the actual buyer in import or export transactions is a customs infraction, which is subject to the penalty of seizure of the merchandise.

In this context, exports conducted through foreign trading companies that belong to the same economic group are usually questioned by customs authorities, which claim that this structure is used to hide the actual acquirers.

In a recent decision, the Administrative Tax Tribunal canceled the customs fine imposed on a Brazilian exporter since the company was able to identify the final acquirers and prove the business purpose on the structure.

This decision is certainly a good precedent for Brazilian exporters and will influence future decisions of the Administrative Tax Tribunal on the same matter.

Brazilian Tax Review – June 2019

Posted on 18 de June de 201918 de June de 2019 by Anni Varanda

Brazil and Uruguay Sign a Double Taxation Convention

On June 7, 2019, Brazil and Uruguay signed a Double Taxation Convention, which contains several rules aligned with the BEPS Project (Base Erosion and Profit Shifting) minimum standards, such as general anti-avoidance rules and exchange of information among the contracting states’ tax authorities.

This new DTC aims to contribute to Brazilian companies’ internationalization, as well as to promote a better business environment for both countries. One must note that the DTC still needs to be ratified by the Brazilian Congress and implemented through a presidential decree in order to become effective.

Brazilian Congress Moves Forward with Tax Reform Proposal

The Lower House lawmakers recently approved a tax reform bill in the House Constitution and Justice Committee. This proposal was drafted by the Fiscal Citizenship Center (“Centro de Cidadania Fiscal” – CCiF), which is an independent institution established to consider improvements to the Brazilian tax system based on the principles of simplicity, neutrality, fairness and transparency.

The reform intends to replace the IPI, PIS/COFINS, ICMS and ISS taxes with a unique Tax on Goods and Services (“IBS”), to be levied on: (1) domestic transactions with goods, services, intangibles, assignment and licensing of rights, and lease of goods; and (2) imports of tangible and intangible goods, services, and rights. The IBS will be a non-cumulative tax, not levied on exports, and not subject to tax incentives that, directly or indirectly, reduce its tax burden.

The bill still has to be approved by the whole Lower House and the Senate in order to come into force.

The tax reform has been awaited with great expectation by the productive sector and is deemed to be the second-most important reform for recovering Brazil’s economic growth, after the pension reform.

New Disclosure Requirements on Crypto Asset Transactions

After a public consultation, the Federal Revenue Office issued Normative Ruling 1,888/2019, implementing ancillary obligations on crypto asset transactions, which will become effective on August 1, 2019.

This is the first guidance from the tax authorities that specifically addresses crypto assets and crypto asset exchanges. Further information on the reporting format will be provided by the tax authorities within 60 days of the enactment date of Normative Ruling 1,888/2019

Administrative Tax Tribunal Held that Brazil-Austria DTC does not Prevail over Brazil’s CFC Rules

Recent decisions issued by the Federal Administrative Tax Tribunal (CARF) held that profits earned by Austrian companies controlled by Brazilian entities are subject to income taxation in Brazil, according to the domestic Controlled Foreign Corporation (“CFC”) rules.

These decisions hold that articles 7 and 23 of the Brazil-Austria Double Taxation Convention do not prevail over the Brazilian domestic CFC rules, which remain applicable to Brazilian subsidiaries in Austria.

Despite this, these administrative decisions should be challenged by Brazilian taxpayers since there is a judicial precedent, issued by the Superior Court of Justice, holding that article 7 of the DTCs prevails over the domestic CFC rules.

Brazil’s IRS Defines “Premiums” for Social Security Contribution Purposes

Since the 2017 reform, labor legislation states that “premiums,” even if paid on a habitual basis, are not part of the employees’ salary, thus not being subject to labor and social security contributions.

The recent Private Letter Ruling 151/2019 stated that “premiums,” in order not to be subject social security contributions, must meet the following requirements: (1) be paid either to a specific employee or a group of employees; (2) be paid in goods/utilities or in cash; (3) be voluntary, without a prior agreement or a legal obligation; and (4) arise from better-than-expected employee performance.

These requirements could be challenged by taxpayers, especially the requirement that the payment be voluntary, which is not provided for by law. Also, the definition of “premium” is pending analysis in the labor courts and their interpretation might influence future changes in the tax authorities’ requirements.

Administrative Tax Tribunal Authorizes PIS/COFINS Credits on Commissions Expenses

In 2018, the Superior Court of Justice decided a leading case on the definition of “inputs” for PIS/COFINS non-cumulative credit purposes. In that instance, the Court held that an “input” must be analyzed under the essentiality and relevance criteria in relation to each company’s economic activity.

Since this decision, the Administrative Tax Tribunal (CARF) has issued several decisions on PIS/COFINS non-cumulative credits, adopting a broader definition of “inputs.”

In this context, in a recent decision, the Administrative Tax Tribunal held, for the first time, that commissions paid to brokers by taxpayers are essential and relevant to their economic activities and, thus, can generate PIS/COFINS non-cumulative credits.

Superior Court Authorizes REINTEGRA Reduction by Presidential Decree

REINTEGRA is a tax benefit aimed at promoting the export of goods by granting PIS/COFINS credits to exporters based on their export revenues.

Originally, the credits were calculated at a 3% rate; however, Federal Decree 8,415/2015 gradually reduced the rate to 0.1%. Taxpayers challenged this reduction, arguing that it is a tax increase, which could only be implemented by a law approved by Congress.

The Superior Court of Justice recently decided this case and held that a specific law had granted discretionary power to the executive branch to regulate the benefit rates in a range of 0.1% to 3%, according to its economic policy. The reductions implemented by Federal Decree 8,415/2015 were therefore allowed by the court.

TAX CHALLENGES REGARDING ONLINE ADVERTISING

Posted on 7 de May de 20197 de May de 2019 by Anni Varanda

It is well known that the constant increase in the number of Internet users has significantly changed various parts of the economy. Of all of them, one of the most affected is marketing, because the Internet has made it possible for companies’ various strategies to be achieved faster and more effectively by directing actions to specific target audiences and, frequently, by monitoring their habits.

However, one of the digital marketing strategies – online advertising – has been the focus of some rather complex disagreements in the tax field. In certain cases, this has led to extremely large infraction notices being issued to companies.

On a global level, online advertising has been the target of some unilateral measures taken by certain countries. The basis for this taxation is the fact that the profits from running advertisements that are obtained by resident companies are normally taxed in the country, while the profits from nonresident companies, obtained in the same way, are not. Due to this, some countries have been taxing the payments made by recipients of advertising services to nonresident providers in order to “equalize” the positions of resident and nonresident providers, thereby treating them the same for tax purposes (at least for the purpose of taxing profits).

One example is India, which is the first country to impose what it calls an equalization levy on nonresidents for running advertisements on the Internet. The equalization levy rate is 6%, charged on the amounts paid to companies abroad by the recipients of the services. Other countries have adopted, or are in the process of adopting, similar measures, although incident on different fields (digital services in general) and using different names to describe the taxes. An example is Italy, which has a web tax of 3% on amounts paid abroad.

Other unilateral measures affect transactions of nonresident companies that do not even receive payments from residents. The basis for these taxes is the fact that, by directing advertising to residents of a given country, the online advertising service providers generate value in that country, even if they do not receive any income from sources located in it. An example of this is an “advertisement tax” created by Hungary that is incident on revenue with online advertising intended for the Hungarian market (for example, advertisements mainly in the local language), regardless of the place of residence of the service providers and advertisers. The service providers are required to pay the tax and they must register with local tax authorities. Additionally, there is a second and subsidiary liability for advertisers resident in Hungary if the nonresident service providers are not registered and the advertisers do not provide identifying information for the service providers to the local authorities.

Multilateral measures are also being discussed to, in the larger context of the digital economy, address the taxation of advertising on the Internet. In this regard, the Organization for Economic Co-operation and Development (OECD), within the Base Erosion and Profit Shifting (BEPS) project, should present its suggestions by the end of 2020. Its interim report on taxation of the digital economy, published in March 2018, did not make any concrete recommendations.

That was not the case with the European Commission, which, in a report published in March 2018, recommended the adoption of an interim tax of 3% of gross revenue obtained by nonresident companies that have a significant digital presence in the member countries of the European Union. Under this proposal, companies that provide digital services (including advertising) would be considered to have a “significant digital presence” if they meet at least one of the following criteria: (a) more than €7 million of annual revenue from a member country over the course of a fiscal year; (b) more than 100,000 users in a member country over the course of a fiscal year; or (c) they sign over 3,000 commercial agreements relating to digital services with business users from a member country. This recommendation is awaiting deliberation by the European Parliament before being put into effect.

In Brazil, there is not yet any tax directed toward online advertising services, or even digital services in general, although payments made abroad for the hiring of services (in general) are already subject to the Withholding Tax (Imposto de Renda Retido na Fonte), or IRRF, at 15% (25% if the service provider is resident in a tax haven) and the Intervention in the Economic Domain Tax (Contribuição de Intervenção no Domínio Econômico), or CIDE, at a rate of 10%. There are also the Social Integration Program Tax (Programa de Integração Social), or PIS, and the Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, taxes on the import of services, at a rate of 9.25%, and, depending on the type of service, the municipal Service Tax (Imposto sobre Serviços), or ISS, at rates of between 2% and 5%.

However, online advertising has been subject to heavy state taxation, with the states arguing that the services are subject to the Tax on the Circulation of Merchandise and Services (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, which is a tax levied on the provision of communication services. The infraction notices issued are generally for large amounts because, in many states, communication services have higher tax rates than the standard ICMS tax rate (25% in São Paulo, for example). Moreover, since online advertising service providers believe they are not subject to the ICMS tax, they do not generally issue tax receipts for this tax, leading auditors to charge heavy fines for failure to issue tax documents (even if the taxpayer issued tax receipts for other taxes, which makes the auditors’ position rather questionable). In the case of São Paulo, the fines are 50% of the transaction amount, which, added to the tax rate of 25%, plus interest, leads to the collection of amounts that can exceed the amount of the transaction itself, making it clearly confiscatory in nature.

These levies, however, are of questionable legality since the communication service is a means and not an end and is generally an input for the provision of the online advertising service. Moreover, the position taken by the states has become (even) weaker after the publication of Supplementary Law 157 at the end of 2016, which clearly states that online advertising services are subject to the municipal ISS tax and not the state ICMS tax. In any case, the courts will have to resolve this issue since the states remain intransigent, even after the publication of Supplementary Law 157. Having the issue resolved by the courts will give greater legal security to those who provide and receive these services, who are currently stuck in the middle of a dispute between the states and municipalities.

In summary, it is possible there will be some important new laws (at least at the international level) and court decisions regarding this matter in the near future. This makes it worthwhile to monitor this subject, which will certainly affect the digital marketplace.

Brazilian Tax Review – April 2019

Posted on 12 de April de 201912 de April de 2019 by Anni Varanda

Important Developments in Brazil’s Double Taxation Convention (DTC) Network

There have been important Developments in Brazil’s DTC network in the last month.

In a nutshell, Brazil and Poland are negotiating a DTC aiming to facilitate trade and economic relations between the countries, which currently face obstacles.

Moreover, Brazil and Chile are revising their DTC in order to align it with the BEPS Project’s minimum standards. The protocol of amendment is still under negotiation and has not been signed yet.

In addition, Brazil and Sweden have signed a protocol of amendment to their DTC, modifying several topics, such as withholding tax reductions to some specific incomes. The protocol still has to be approved by the Brazilian Congress and, afterwards, to be promulgated by a presidential decree in order to become effective.

Finally, the Brazilian Congress has recently published Legislative Decree 8/2019, which approved the protocol of amendment to the double tax treaty between Brazil and Denmark. The Protocol still has to be promulgated by a presidential decree in order to become effective.

Federal Revenue Office States that Payments for Technical Services Are not Subject to WHT under Brazil-France DTC

With a few exceptions, most of the DTCs signed by Brazil qualify payments for technical services as “royalties” instead of “business profits,” which grants the right to tax to the source country.

The recent Private Ruling 2,004/2019 states that the Brazil-France DTC is one of those rare exceptions that does not qualify payments for technical services as “royalties,” but as “business profits,” so that withholding income tax does not apply when a Brazilian resident pays service fees to a French resident.

Court Authorizes Retroactive Payments of Interest on Shareholder Equity

The Federal Court of the 3rd Region ruled in favor of taxpayers, in line with the Superior Court of Justice, in lawsuits challenging retroactive payments (related to past fiscal years) of interest on shareholder equity, allowing it to be deducted from corporate income taxes.

These decisions diverge from the Brazilian Federal Revenue Office and the Administrative Tax Tribunal (CARF) positions and may represent relevant savings for the taxpayers.

Payments for Participation in Cultural Events Held in Brazil by Non-Residents Are Subject to the WHT

Under Brazilian legislation, remittances abroad for educational, scientific and cultural purposes are not subject to the withholding income tax.

In this context, the Brazilian Federal Revenue Office has issued Private Letter Ruling 70/2019, clarifying that this exemption only applies to payments made to cover the expenses of the Brazilian residents at events held abroad.

Therefore, according to the tax authorities, payments for the participation of Brazilian residents in cultural events organized by non-residents and held in Brazil are subject to the withholding income tax.

Courts Deem that Export Revenues Are Exempt from Foreign Exchange Tax (“IOF-Câmbio”)

Tax authorities have stated, by means of Private Letter Ruling 246/2018, that export revenues received at a foreign bank and immediately sent to Brazil were exempt from IOF-Câmbio. On the other hand, if the remittances were made after some time, these transactions would be subject to the IOF-Câmbio tax.

In spite of the tax authorities’ understanding, the courts have entered decisions favorable to taxpayers, arguing that there is no legal provision binding the IOF-Câmbio exemption to the moment the revenues are transferred to Brazil. Thus, tax authorities must apply the exemption according to these decisions, even if the export revenues are not immediately transferred to Brazil.

Federal Revenue Office States that PIS/COFINS-Import Must be Levied on Insurance Premiums Paid to Non-Residents

PIS/COFINS-Import are social contributions levied on the import of goods and services. Therefore, the incidence of such taxes on other transactions that are usually compared to service provisions, such as licensing intangibles, has always been a controversial matter.

In this context, the recent Private Letter Ruling 47/2019 states that premiums paid to non-resident insurance companies are subject to PIS/COFINS-Import. This interpretation might be challenged by taxpayers in court, arguing that insurance should not be considered a service provision, so PIS/COFINS-Import should not apply.

Federal Revenue Office Qualifies Debt Forgiveness as Financial Income for PIS and COFINS Purposes

Brazilian legislation states that “general revenues” must be taxed by PIS and COFINS at a 9.25% overall rate, whereas the financial revenues are levied at a 4.65% jointly rate.

Originally, the Federal Revenue Office had issued a Private Letter Ruling stating that debt forgiveness should be considered “general revenue,” being taxed at a 9.25% PIS and COFINS rate.

However, this interpretation was recently modified. In a new private letter ruling, tax authorities stated that debt forgiveness related to bank loans should be classified as financial revenues and, thus, be subject to a 4.65% PIS and COFINS overall rate, which is a more favorable rate.

Administrative Tax Tribunal Held that Social Security Contribution Should Not Be Levied on Hiring Bonuses

In a recent decision, the Administrative Tax Tribunal (CARF) held that hiring bonuses paid by companies to newly hired executives, prior to the provision of services, should not be subject to social security contributions.

Originally, a tax audit had assessed a Brazilian company, claiming that hiring bonuses should be considered an advance payment on salary and, as such, subject to the social security contribution. However, the Administrative Tax Tribunal cancelled this assessment and held that hiring bonuses are in the nature of an indemnity and not a salary, meaning they are not subject to the social security contribution.