Brazilian Federal Revenue Targets Brazilian Real Estate Investors in the US
The end of the voluntary disclosure program in Brazil, implemented by Law #13254/2016 and amended by Law #13428/2017, last July 31st triggered the Brazilian Federal Revenue (“RFB”) focus on Brazilian real estate investors that omitted or undervalued declared assets acquired in the U.S. According to the RFB, more than two thousand people bought apartments or houses in the US in 2015, but did not properly inform the Brazilian tax authorities. Although the RFB has not disclosed the amount of money that might be collected through these audits, it is expected to receive about R$2.27 billions (approximately $670 million dollars) through taxes, penalties and interest.
According to the RFB Audit Department’s Undersecretary, Iagaro Jung Martins, these assets were identified because Brazil is now a signatory of the Multilateral Competent Authority Agreement (MCAA), which provides standardized and efficient mechanisms to facilitate the automatic exchange of information in tax matters between countries. Until August 2017, 61 jurisdictions had signed the convention, including Switzerland, the British Virgin Islands and Cayman Islands.
The U.S. has not signed the MCAA, but implemented in 2010 a similar program known as FATCA (Foreign Account Tax Compliance Act), which Brazil joined in 2015. Through FATCA, Brazilian financial institutions are required to report significant information from U.S. residents to the RFB that are exchanged with the U.S. In return, the IRS provides information from Brazilians that hold financial assets in the country to the RFB.
Mr. Martins also states that Brazilians are responsible for 12% of the real estate acquisitions in Miami. In 2015, Brazilians acquired $730 million in real estates in the U.S., 43% of them through Limited Liability Companies (LLCs), which were not reported in the individual’s tax returns. Another factor that stood out to the tax authorities is that 75% of these properties were cash purchases.
The RFB will now focus its efforts on taxpayers that did not adhere to the Brazilian amnesty program to regularize their offshore assets. According to Mr. Martins, the value of the real property omitted will be deemed income to the taxpayer, and taxes, interest and penalties will be assessed by the tax auditors.