14 th Americas School of Mines

Transcription

1 Brazil Tax Update Jaime Andrade

2 Agenda Brazilian Black List Thin Capitalization Rules in Brazil general aspects Royalties (CFEM Financial Compensation for the Exploration of Mineral Resources) potential changes Slide 2

3 Brazilian Black List Two Different Concepts: Tax Haven and Privileged Tax Regime Tax Haven: a) Does not impose taxation on income, or taxes income at a maximum rate of less than 20%; b) Does not allow access to information relating to the ownership of shares of local entities, the ownership of goods, and/or rights or information regarding economic transactions. c) Normative Instruction # 1037/10 enumerates 65 jurisdictions as tax havens Slide 3

4 Brazilian Black List Privileged Tax Regime: a) Does not impose taxation on income, or taxes income at a maximum rate of less than 20%; b) Grants tax benefits to non-residents (individuals or legal entities) without requiring substantial economic activity in the respective jurisdiction, or grants tax benefits to the extent that the non-resident does not conduct substantial economic activity in the jurisdiction; c) Does not impose taxation on earnings generated outside of the territory of the respective jurisdiction, or imposes tax on those earnings at a maximum rate of less than 20%; d) Does not allow access to information relating to the ownership of shares of local entities, the ownership of goods, and/or rights or information regarding economic transactions Slide 4

5 Brazilian Black List Privileged Tax Regime: e) Normative Instruction # 1037/10 enumerates 10 types of legal entities that are considered privileged tax regimes. Ex.: U.S. LLCs that are owned by non-u.s. residents and not subject to U.S. Federal taxes are included in the privileged tax regime list. Slide 5

6 Brazilian Black List Tax Haven X Privileged Tax Regime: main practical implications a) Tax Haven higher WHT rate (25%) on payments of royalties, capital gain, interests and technical services while payments to Privileged Tax Regimes are subject to 15% (position of the tax authorities???) b) Tax Haven and Privileged Tax Regimes obligation to apply Transfer Pricing Rules, thin capitalization rules and more severe conditions for the deduction of payments made to those jurisdictions. Slide 6

7 Brazilian Black List Tax Haven X Privileged Tax Regime: main practical implications c) The amounts paid by a Brazilian company to beneficiaries domiciled abroad in a tax haven or in a low tax jurisdiction are not deductible for income tax purposes, regardless of its nature, except when the following requirements are cumulatively met: I The effective beneficiary of the payment is identified (the recipient of the payment will be considered the effective beneficiary if it is not incorporated with the sole purpose of avoiding/minimizing taxation and it is acting on its own account); II There is evidence that the payment beneficiary has operational capacity (i.e., substance); and III There is adequate supporting documentation to support the relevant payments and the corresponding supply of goods, rights or utilization of services. Slide 7

8 Thin Capitalization Rules general aspects Companies subject to the new rules: Related parties domiciled abroad; Companies located in tax haven or in low tax jurisdiction; or Any other lender if there is a guarantor, attorney-in-fact or intervening party that is a related party or a Company located in tax haven or in low tax jurisdiction Slide 8

9 Thin Capitalization Rules general aspects Loans not involving tax havens or privileged tax regimes Interest paid or credited from a Brazilian company shall only de deductible for income tax purposes when necessary for its activities and the following requirements are cumulatively met: I - the amount of the loan with related party shall not exceed two times the amount of the foreign related party s participation in the Brazilian company s net equity by the time of the interest is accrued; II - the amount of the loan with related party with no interest participation in the Brazilian entity shall not exceed two times the Brazilian entity s net equity by the time of the interest is accrued; III - the total amount of loans shall not exceed two times the total amount of foreign related parties participation in the Brazilian company s net equity by the time of the interest accrual. Slide 9

10 Thin Capitalization Rules general aspects Loans involving tax havens or privileged tax regimes Interest paid or credited from a Brazilian company shall only de deductible for income tax purposes when necessary for its activities and the balance of the loans with entities domiciled in those jurisdictions does not exceed 30% of Brazilian entity s net equity. Slide 10

11 Royalties (CFEM) potential changes Mining Regulatory Framework in Brazil a) proposed changes for the Mining Regulatory Framework in Brazil; b) creation of a Mining Regulatory Agency; c) review of the CEFEM current legislation aiming at: 1. Promote the production of products with more value addition in the mineral production chain; 2. Contribute to the sustainable development of mining cities and other that suffer the consequences of mining activities; 3. Improve and give more transparency to tax collection, control and surveillance; 4. Improve the distribution of the wealth generated by mining; Slide 11

12 Royalties (CFEM) potential changes Mining Regulatory Framework in Brazil d) potential changes in rates taking into consideration: 1. Relative lack of the mineral product to supply the Brazilian market; 2. Direct application of the substance in society use; 3. Product added value e) clearer criterion for the determination of the calculation basis Slide 12