The new tax regime applicable to O&G companies

Size: px

Start display at page:

Download "The new tax regime applicable to O&G companies"

Brianna Douglas
6 years ago
Views:

1 INFORMA TAX The new tax regime applicable to O&G companies Law No. 13,586 ( Law 13,586 ) has been recently enacted and introduced a new tax regime for the oil & gas sector ( O&G ). Law 13,586 is a result of the conversion of Provisional Measure No. 795 ( PM 795 ). The Federal Revenue regulated the changes brought by Law 13,586 by Normative Ruling No. 1,778, from January 2, Additionally, Normative Ruling No. 1,743, from September 22, 2017, which governed the special customs regime for the importation of assets intended to O&G activities ( Repetro-Sped ) was revoked by Normative Ruling 1,781, from January 2, 2018 ( IN 1,781 ). See below the main changes brought forth by such new piece of legislation: January 2018 For additional information please contact: Roberto Barrieu D roberto.barrieu@souzacescon.com.br Hugo Barreto Sodré Leal D hugo.leal@souzacescon.com.br Rafael Macedo Malheiro D rafael.malheiro@souzacescon.com.br Ramon Castilho D ramon.castilho@souzacescon.com.br Sarah Barbassa D sarah.barbassa@souzacescon.com.br Rafael Baleroni D rafael.baleroni@souzacescon.com.br Maurício Teixeira dos Santos D mauricio.santos@souzacescon.com.br

2 General provisions applicable to the O&G industry Prior Rules Provisional Measure Law 13,586 IN 1, Broader concept the charterer and the Brazilian services provider will be considered as related parties when they hold any of the following relationships: (i) head offices and branches; (ii) controlled and affiliated companies; (iii) entities under common corporate or administrative control, when at least 10% of the capital stock of each belongs to the same person; (iv) if the foreign entity together with the Brazilian entity hold capital stock of a third company, whenever the sum of their stake qualifies them as controlling or affiliated companies; or (v) are associated under a consortium or condominium in any given enterprise. Definition of related party Narrow concept the foreign owner of the vessel and the Brazilian service provider shall be considered as related parties whenever they hold interest, directly or indirectly, in a legal entity that owns the chartered or leased assets. Maintained the broader concept brought by PM 795. Maintained the broader concept brought by PM 795. Contractual split maximum percentage of the charter Floating production, storage and/ or off-loading units (FPS): 85% Ships for the drilling, completion and recompletion of wells (drillships): 80% Other vessels: 65% Floating production and/or storage or off-loading units: 70% Ships for the drilling, completion and recompletion of wells (drillships): 65% Vessels used in maritime support: 65% Vessels used in certain LNG activities: 60% Other vessels: 50% Maintained the split percentages brought by Provisional Measure 795. Some cross-references included to make clear that vessels used in certain LNG activities are subject to the same regulatory system of other vessels. Increased the FPS maximum ceiling to 75%, and maintained the other ones. Introduced a calculation formula to achieve the contractual split. 2

3 Prior Rules Provisional Measure Law 13,586 IN 1, Any withholding tax ( WHT ) liability arising from triggering events occurred until December 31, 2014 may be settled without the payment of penalties (due date: January, 2018). PM 795 clarifies that the breach of the Contractual Split ceiling is not sufficient to recast the charter payments as income derived from the rendering of services for CIDE and PIS/COFINS purposes. Past liabilities - contractual split Not applicable Maintained the benefit brought by PM 795. Not ruled CIDE and PIS/ COFINS charges Not applicable Maintained the same text from PM 795. The Bill of Law to convert PM 795 into Law had incorporated a specific provision stating that the settlement of any outstanding WHT liabilities would automatically imply the wavering of CIDE and PIS/COFINS debts, even if already assessed by tax authorities. However, the President vetoed such provision. Extended the tax suspension on permanent imports until Similar to Law 13,586 Permanent import of assets with suspension of federal taxes Did not authorize permanent imports with suspension of federal taxes. Authorized the suspension of federal import taxes on permanent imports until Denied the referred suspension to the import of maritime support vessels (see section Eligible assets of the chart below). Extended the tax incentive term until The Bill of Law proposed to extend such benefit to the entire production chain of the O&G sector. However, the President vetoed such provision, remaining in force the rules brought forth by PM 795. Regulated by IN 1,781 Incentive for the local industry There were certain special regimes which granted the suspension of taxes levied on transactions carried out by local suppliers. Allows the suspension of federal indirect taxes that would be otherwise levied on the acquisition of inputs by local suppliers, as well as on their subsequent sales to the O&G concessionaires until Not regulated by IN 1,778 3

4 Deductibility of expenses for income tax purposes Prior Rules Legislation in force only dealt with expenses incurred by Petrobras. Provisional Measure 795 New rules applicable to all industry players, detailing the tax treatment applicable to the expenses incurred in the exploration, production and development phases. Accelerated exhaustion rates: assets accounted for until derived from expenses related to the development phase may be amortized based on a 2.5 rate. Law 13,586 IN 1,778 Preserved the tax treatment introduced by the PM 795, excluding the final term for the formation of the assets that could benefit from the accelerated exhaustion rules. Details the new rules. Repetro-Sped Beneficiaries REPETRO REPETRO-Sped IN 1,743 REPETRO-Sped IN 1,781 (i) O&G concessionaires; (ii) service providers hired by the concessionaires; as well as (iii) those legal entities appointed by the concessionaire to carry out the import of assets. Only the O&G concessionaires and their service providers are eligible to the regime. Term Customs Treatment Imported assets: temporary importation with suspension of the import taxes Local assets: symbolic exportation combined with a temporary importation (assets do not physically leave the Brazilian territory). In addition to the existing regimes, PM 795 authorized the permanent importation with the suspension of federal import taxes until Only the O&G concessionaires and their service providers are eligible to the regime. Extension of the permanent importation term to

5 REPETRO REPETRO-Sped IN 1,743 REPETRO-Sped IN 1,781 Eligible Assets Platforms and FPSOs New restrictions to temporary admissions Guarantees General list of eligible assets without any specific reference to their Mercosur Customs Code - NCM (based on the harmonized System code). No specific restriction for the import of Platforms or FPSO under the temporary admission regime. New analytical lists of eligible assets, identified by their corresponding NCM. Creation of two distinct lists one applicable to temporary imports and the other to the permanent imports. REPETRO-Sped does not allow the temporary import of Platforms and FPSOs whenever the Charterer and the O&G concessionaire are related parties. Not applicable REPETRO-Sped does not allow the temporary import of assets whenever, among other cases: (i) the present value of the chartering, rental or lease agreement exceeds the assets value; and (ii) the lease or charter agreements provides for a purchase option. The amount of the suspended taxes must be secured by the beneficiary of the regime. There were three possible types of guarantees: cash deposit, a surety provided by a reliable guarantor and customs insurance. Guarantor should have a net worth of at least BRL 5 million to be accepted. No longer required to secure the amount of suspended taxes derived from the import of vessels and platforms, or other assets linked to an EPC agreement. The amount of the suspended taxes related to any other imports must still be secured. Maintained the lists provided by IN 1,743. Vessels destined to domestic internal navigation, cabotage (domestic coastal navigation), maritime support navigation and port support navigation cannot benefit from a permanent import with suspension of taxes. Restriction provided by IN 1,743 still applies, with a clearer language. If the charter/lease of a foreign asset is linked to a service agreement rendered by a Brazilian party, the temporary import of such asset shall be carried out exclusively by the Brazilian party responsible to pay the charter/lease fees. The remaining restrictions for temporary admission were maintained. New provision stating that the guarantor shall hold a net worth of at least BRL 10 million. Additionally, the guarantee shall not be accepted whenever (i) the secured tax debt amount exceeds the sum of both the Guarantor s and the Repetro beneficiary s net worth; (ii) the secured tax debt exceeds two times the guarantor s net worth; (iii) the difference between the secured tax debt and the sum of the guarantor s and the Repetro beneficiary s net worth cannot exceed 50% of the Guarantor s net worth Maintains the exemption from providing guarantees in the case of the import of vessels and platforms, or assets linked to an EPC agreement. 5

6 REPETRO REPETRO-Sped IN 1,743 REPETRO-Sped IN 1,781 Request for the eligibility to the REPETRO - Timeframe Undefined Automatically granted if the request is not analyzed by tax authorities within 30 days. Automatically granted if the request is not analyzed by tax authorities within 30 days. In addition to the changes described above, Normative Ruling No. 1,781 also provides that assets imported until December 31, 2017 under the past REPETRO regime may shift to the REPETRO-Sped anytime between January 1, 2018 and December 31, 2018 through a simplified proceeding ( fast-track ). After such date, it will still be possible to migrate to the new regime; nonetheless, such request will need to comply with the general rules applicable to the transfer of assets among distinct special customs regimes (no fast-track applies). We highlight that Normative Ruling No. 1,781 also amended the Normative Ruling No. 1,415, from December 4, 2013, to align the tax treatment applicable to those assets admitted under the prior regime (REPETRO) to the new tax system brought forth by the recent legislation. One should expect intensive activities to consider the applicability of the new rules and numerous requests to shift to the new regime during Our Oil & Gas and Tax teams remain at your disposal to discuss any specific issues derived from the new legislation and to assist in implementing regime changes. This newsletter provides information about legal developments in Brazil to clients and members of Souza, Cescon Barrieu & Flesch Advogados. The content included herein is not meant to provide legal advice with respect to any specific matter. We do not undertake to update, supplement or modify the information contained herein. 6

Brazil s New Tax Rules for Oil and Gas Activities January, 2018

Brazil s New Tax Rules for Oil and Gas Activities January, 2018 Tauil & Chequer Advogados is associated with Mayer Brown LLP, a limited liability partnership established in the United States. Index I.