Brazil. November, 2015 kpmg.com

Transcription

1 Brazil November, 2015 kpmg.com

2 Brazil by the numbers LARGEST COUNTRY IN SOUTH AMERICA IN TERMS OF GDP (BRL 4.4 TRILLION IN 2014) CHALLENGING MACROECONOMIC ENVIRONMENT A CONVOLUTION OF ECONOMIC, POLITICAL AND SOCIAL EVENTS KPMG in LLP, Brazil, UK a limited Brazilian liability limited partnership, liability partnership is a subsidiary and a of member KPMG Europe firm of LLP the and KPMG a member network firm of independent of the KPMG member networkfirms of independent affiliated with member KPMG firms International affiliated Cooperative, with KPMG International a Swiss entity. Cooperative, All rights reserved. a Swiss entity. All rights reserved. DIVERSE INDUSTRIAL BASE, YOUNG POPULATION, RECEPTIVE TO NEW TECHNOLOGIES 1

3 Current macroeconomic scenario The bright spots And, it is important to consider the bright spots of the economy... Young population eager to learn and adapt Population receptive to new technologies Responsive to new business models Entrepreneurial mindset The average age of the Brazilian is around 30 years old. They are forward-looking, optimistic and creative. The social media capital of the universe. 70 million Facebook users (placing it third country in the world, after the US and India) and 13 million Twitter users. Accustomed to inefficient infrastructure and public services, population open to alternative solutions Uber, Airbnb are booming More entrepreneurial economy. For a long time, less than 30% of companies created would survive the first two years. Now this figure is around 75% KPMG in Brazil, a Brazilian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 2

4 Current macroeconomic scenario Where were we and what has changed? Until recently the investment decision in Brazil was a no-brainer But these factors also created hype and had unintended consequences Strong demographic base High GDP growth Growing middle class Investment plan for infrastructure (PAC I and PACII) Mandate to invest in education and innovation High valuations Hype phenomena Investing became very expensive Rush to invest before large events which jeopardized judgement (digitalization) 2015 KPMG in Brazil, a Brazilian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 3

5 Current macroeconomic scenario Where were we and what has changed? Brazil is a the central of thunderstorm brought about by economic, political and social events, that has left it in a dire mix of recession, inflation debt and unemployment Indicator GDP, Real 7.5% 1.8% -2.5% Exhchange rate (USD /BRL) SELIC 9.9% 8.3% 13.4% Inflation 5.9% 5.9% 9.4% Unemployment rate 9.0% 7.1% 8.3% Presidential approval 90% 30% 10% 2015 KPMG in Brazil, a Brazilian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 4

6 Doing business in Brazil key challenges MOST SECTORS NEED HEAVY INVESTMENTS TO EQUALIZE NATIONAL DEFICIENCIES THE INCOME GROWTH AND OTHER DEMOGRAPHIC CHANGES HAVE RESULTED IN INCREASING DEMAND FOR SERVICES AND GOODS FOREIGN COMPANIES INVEST IN BRAZIL FOR A VARIETY OF STRATEGIC REASONS 5

7 DOING BUSINESS IN BRAZIL KEY CHALLENGES 1 INFRASTRUCTURE Based on surveys Brazil s infrastructure is ranked 107 (of 148) Series of infrastructure concessions are scheduled which could lead to improvements but delays have become a major issue 2 TAX RATES AND COMPLEXITY Brazil has one of the most complicated and expensive tax systems in the world Complexities include multiple taxes of which several are indirect and cascading applied in a legislative environment that is unique for each state 3 BUREAUCRACY Brazil is ranked 135th (of 148) in terms of procedures to start a business and number of days to start a business was ranked 144th 4 INFORMALITIES AND CORRUPTION Civil unrest since June 2013 have been largely with protesters demanding measures against corruption and misuse of public funds, among other grievances. The most recent corruption issue is known as Operação Lava Jato but some of the suspects have already been judged recently. 5 SHORTAGE OF TALENT Brazil lags other countries in terms of higher education. The labor market reflects this shortage with a premium for those with a degree. The full employment situation impacts the cost of labor which ultimately impacts profitability 6

8 DOING BUSINESS IN BRAZIL BRAZIL TAX LANDSCAPE/RATES FEDERAL TAXES RATES Net Income Taxes Corporate Income Tax 15% + 10% Social Contribution Tax on Profits 9% or 20% Domestic Transactions and Cross-border Taxes STATE TAX RATES Domestic Transactions and Import of Goods ICMS 7% to 25% (18%) ITCMD 4% PIS/ COFINS (usual rates) Federal Excise Tax (IPI) Cross-border taxes Import Tax (II) 9.25%, 11.75% or 3.65% Variable Variable MUNICIPAL TAX RATES ISS 2% to 5% ITBI (Real State Transfer Tax) 2% Withholding Income Tax 15% or 25% CIDE 10% Tax on Financial Operations (IOF) 0.38% / Variable 7

9 DOING BUSINESS IN BRAZIL WHAT DOES IT TAKE TO MANAGE TAX? MARKET ENTRY STRATEGY AND EFFICIENT TAX MANAGEMENT TAX LOGISTICS MANAGING RISKS OPERATIONAL Are my indirect taxes - ICMS, IPI, PIS, COFINS, ISS liabilities calculated and paid correctly? Are the available tax incentives properly explored? Are there proper profit repatriation alternatives in place? Does my supply chain work in a tax efficient manner? Imports x Local sourcing could represent tax savings? Manufacturing, Distribution and Sale require strong supply chain management Am I doing the appropriate tax planning for the local business without risks? What major initiatives are competitors currently working on? Do I have strong electronic tax systems to comply with Brazilian legislation or legal requirements? Compliance with Electronic tax invoices, SPED and Other federal, state and municipal fillings? 8

10 Doing business in Brazil acquisition structuring IMPLEMENTATION OF EFFICIENT TAX STRUCTURE IS CRITICAL 9

11 DOING BUSINESS IN BRAZIL BASIC ACQUISITION STRUCTURE A FOREIGN HOLDING STRUCTURE A foreign holding company can buy the shares of the Brazilian target or investment through a FIP (close mutual fund) Outside Brazil Brazil B Tax benefits include Ability to distribute cash from Brazil with no withholding taxes Dividends received by Foreign Holding Co would generally not be taxed in that jurisdiction Potential to avoid US tax on dividends to Foreign Holding Co Ability to pay interest on equity (deductible for income tax purposes) May avoid capital gains taxes in Brazil if shares where sold in the future COMPANY FIP COMPANY 10

12 DOING BUSINESS IN BRAZIL REPATRIATION DIVIDENDS: NO BRAZILIAN TAXES IMPOSED A Other alternatives: Interest on Net Equity ( Notional interest ) Deductible for income tax purposes No IOF Outside Brazil Brazil B COMPANY 15% or 25% WHT applies. Potential tax law changes FY 2016 are expected 18% WHT. Capital reductions Potential capital gains subject to 15% WHT (or 25% WHT for tax havens ). Potential tax law changes expected FY % IOF 11

13 DOING BUSINESS IN BRAZIL ADDITIONAL PLANNING REDUCTION IN BRAZILIAN INCOME TAXES BASIS STEP UP ON ASSETS A B Special structuring would step-up assets and goodwill to FMV Additional amortization would be deductible and reduce income taxes in Brazil STRUCTURING Requires the formation of a new Brazilian holding company which would acquire the Target. Subsequent merger of Target into the Brazilian holding company Outside Brazil Brazil BRAZIL HOLDING Brazil Holding may be funded with debt and equity Certain notes-debentures could offer WHT tax exemption Debt / Equity alternatives Thin cap rules COMPANY 12

14 INVESTMENT IN BRAZIL INDIRECT TAXES FOREIGN PARENT COMPANY IMPORT LOCAL MANUFACTURE R SALE BRAZILIAN SUBSIDIARY INDIRECT TAXES OUTPUT TRANSACTIONS INDIRECT TAXES INPUT TRANSACTIONS ICMS PIS/COFINS IPI ICMS (*) (18%) PIS-COFINS (11.75% 12.75%) IPI (*) (15%) II (*) (16%) ICMS (*) (18%) PIS-COFINS (11.75% ) IPI (*) (15%) II (*) (16%) (*) Variable rates but most common tax rates 13

15 INVESTMENT IN BRAZIL INDIRECT TAXES EXAMPLE OF LOCAL TAX INCENTIVE FOREIGN PARENT COMPANY IMPORT TAX INCENTIVE COMPANY SALE BRAZILIAN SUBSIDIARY TAX INCENTIVES TAX INCENTIVES ICMS: suspended PIS-COFINS: suspended IPI: suspended II: reduced or exempted ICMS: Tax credit or deferral PIS/ COFINS: reduced IPI: exempt or deferral Important aspects Logistics costs are extremely important element in the model There are other types of state and municipal tax incentives 14

16 DOING BUSINESS IN BRAZIL TAX INCENTIVES FEDERAL TAX INCENTIVES Geographical-Sectorial oriented tax incentives (North and Northeast) Different types of incentives (e.g. tax exemptions, tax reductions, deferrals, presumed credits) Clear regulations for application STATE AND MUNICIPAL TAX INCENTIVES Granted by States (27) and Municipalities (approx. 5,000). Most part of state tax incentives are granted under the form of ICMS, IPTU or ISS reductions, exemptions or deferrals. Potential areas of risks whenever using some of the incentives considering tax competition among Brazilian states. Necessity of clear analysis of regulations. OTHER TYPES OF INCENTIVES R&D tax incentives (specific slide) Some projects may receive special lines of funding from Brazilian governmental investment bank (BNDES), provided a process is approved. 15

17 DOING BUSINESS IN BRAZIL R&D INCENTIVES IN GENERAL LINES, TECHNOLOGICAL INNOVATION INCENTIVES MAY GRANT FOR THE TAXPAYER THE FOLLOWING TAX BENEFITS: Special deductions and tax reductions on the income tax computation in connection to expenses incurred during technological research 50% tax reduction of the IPI levied on machines, equipments or spare parts and tools in connection to technological research Full depreciation in the year of acquisition of new fixed assets in connection to technological research Accelerated amortization for intangible assets acquired in connection to technological research WHT zero-rated on remittances abroad related to trademarks, patents and cultivars 16

18 Current tax issues in Brazil TAX PACKAGE OVERVIEW BRAZIL & BEPS TAX UP-DATES E-FILLINGS UP DATES KPMG in LLP, Brazil, UK a limited Brazilian liability limited partnership, liability partnership is a subsidiary and a of member KPMG Europe firm of LLP the and KPMG a member network firm of independent of the KPMG member networkfirms of independent affiliated with member KPMG firms International affiliated Cooperative, with KPMG International a Swiss entity. Cooperative, All rights reserved. a Swiss entity. All rights reserved. 17

19 Tax package Main tax changes Temporary Contribution on Financial Operations ( CPMF ): Imposed in the past (from 1997 to 2007) September 22, 2015: project to amend the Brazilian Constitution (PEC 140), allowing the CPMF to be reinstated Current proposal: in force for 4 years, starting in 2016 rate of 0.20% (or 0.38%, according to the State Governors) would be levied on every banking transaction (deposits and withdrawals) Legislative process not initiated yet Individuals Capital Gain Taxation: Currently, individuals are subject to a 15% tax on capital gains Proposal of new WHT rules and rates (starting January 1, 2016): 15% - up to BRL 1 million 20% - between BRL 1 million and BRL 5 million 25% - between BRL 5 million and BRL 20 million; and 30% - above BRL 20 million In case it is approved, new rules also applicable to non-residents, on specific situation Still needs approval from Congress. Effects would be in force as of 2016 Changes in the Interest on Net Equity ( INE ) Increase of the WHT rate from 15% to 18%; and Cap of the Government s long-term interest rate ( TJLP ) to 5% (it was set at 7% for the fourth trimester of 2015) Still needs approval from Congress. Effects would be in force as of 2016 REINTEGRA REINTEGRA is a special regime that return back to exporter companies PIS/Cofins credits that can be used to offset federal taxes due Former rate was 3%over the export revenues. New legislation reduced the applicable rate for 1%until 2016, 2% from 2016 to 2017 and returns to 3% as of New rules in force since March KPMG in Brazil, a Brazilian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

20 BEPS Action plan Tax planning filling MP 685/2015 Provides that the following types of transactions occurring in the previous year are to be disclosed to the Brazilian Internal Federal Revenue Service ( RFB ): actions or operations that cannot be explained by relevant commercial, business or economic motivations actions where the form of transaction is unusual, uses an indirect contractual transaction or departs in its nature from a typical contract actions or operations explicitly provided for in a future Act to be issued by the RFB Also establishes that the disclosure of events or legal acts that have not yet taken place shall be deemed to constitute a request for a formal private letter ruling, which the tax authorities have discretion to grant or deny If a transaction is disregarded, the taxpayer will be notified that the tax due must be paid within 30 days Non-compliance with the disclosure requirements shall be considered a deliberate omission, with the intent to engage in tax evasion or fraud Legislation still pending on final approval 2015 KPMG in Brazil, a Brazilian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

21 E-fillings Current Scenario ECF CIT filling Greater data control by Brazilian tax authorities Faster tax assessments and higher transparency e-social Social Security and Labor filling Necessity of strong IT controls SPED Financeiras (FATCA) FUNDAMENTAL CHANGES IN BOTH TAX AND LABOR COMPLIANCE Bloco K Inventory Control SPED Accounting and Fiscal 2015 KPMG in Brazil, a Brazilian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 20

22 Thank you / Obrigado Murilo Mello Brazilian Tax Partner KPMG LLP Tel: +1 (305) mrodriguesdemello@kpmg.com