The List of Tax Haven Countries Gets Longer in Brazil

Ireland and Austrian holdings are being blacklisted by Brazilian Tax Authorities

On September 14, 2016, Brazilian Federal Revenue Service amended Normative Ruling RFB no.1,037/2010, in order to add Normative ruling 1,658 to include and also remove some jurisdictions from the Brazilian blacklist for either being a tax haven or a preferential tax regime country. Ruling no. 1,658 added Curacao, Saint Martin and Ireland as tax haven countries while Netherlands Antilles, Federation of Saint Kitts and Nevis were removed.

The Brazilian ruling also made provisions to include a definition of what minimum “substantial economic activity” stands for, which sheds light on the Dutch and Danish holding company regimes now being regarded as Preferential Tax Regime (“PTR”).

Based on this new ruling, a holding company is deemed to have substantial economic activity when it has operational capacities in its residence country, has skilled employees on a larger scale, suitable facilities to efficiently operate in order to increase the development of activities to better manage the holdings equity to produce income from distribution of profits and capital gains.

Brazilian tax authorities state that a holding entity in a tax haven country is one that benefits from no taxation or a tax rate lower than 20%, as well as being secretive on its equity participation and ownerships.

Brazilian law has outlined certain provisions that will deem a holding company under PTR, even if they are not considered to be in a tax haven jurisdiction.

What is considered a PTR according to Brazilian tax law?

1. A company that is not taxed or has is taxed at a rate lower than 20%.
2. Tax benefits are granted to non-residents.
3. Any foreign income that is not taxed.
4. Corporate structure that is not obliged to disclose their corporate structure or ownership.

What penalties are being implemented by Brazilian Tax Authorities to tax haven countries?

Brazilian authorities are implementing a higher rate of withholding on all income and capital gains from these companies, as well as taking away all exemptions afforded to foreign profits. The beneficial owner of the entity must be disclosed to the authorities to allow for proper deductions by Brazilian law .Thin capitalization and Brazilian transfer pricing rules will also be harsher for holding entities.
Entities under the PTR jurisdictions suffer from some of the same tax consequences, irrespective of the fact that they are not considered to be in a tax haven jurisdiction under Brazilian tax law.

If you need assistance, you may contact Barbosa Legal a tax attorney at Barbosa Legal, to discuss your specific situation.

Maria Moller