Brazil Expands Its Blacklist of Tax Havens

After the publication of Normative Instruction 1.037/2010 on June 07th, 2010, Brazilian IRS has officially included some new countries and corporate structures in its blacklist of tax havens.

This new regulation is in line with Law 11.727/08, which had already broadened the concept of tax haven for the Brazilian tax legislation. Previous concept was that a privileged tax regime was one of a country where profits are not taxed or the applicable tax rates applicable over such profits are lower than 20% or also countries in which it laws does not allow full and unrestricted access to the taxpayer’s information and the corporate structure and composition.

Law 11.727/08 expanded the Brazilian concept of tax haven including also regimes that grant tax benefit to a nonresident individual or entity i) without substance requirements or ii) dependent upon the carrying out of non-substantial economic activities and also regimes that do not impose tax on foreign income or when doing so at a rate of 20% or lower.

In this sense, besides of the publication of such law, a previous Normative Instruction (IN 188/2002) – now revoked - was in force, disregarding several privileged taxation regimes and thus creating a gap between the new legislation and the blacklist in effect. Considering such scenario, the inclusion of Swiss companies, holding companies in Luxembourg, Denmark and the Netherlands, the Uruguayan “Safi’s” (Sociedades Financeiras de Inversão), the Icelandic’s and Maltese’s ITC’s (International Trading Companies) and also the Maltese’s IHC (International Holding Companies), the Hungarian’s KFT offshores, the Spanish’s E.T.V.E (Entidad de Tenencia de Valores Extranjeros - E.T.V.Es) and some of the LLC’s based in the U.S. states (whose corporate control is not of an US resident and is not subject to federal taxation) will be under deeper scrutiny of the RFB, after the publication of the Normative Instruction. Moreover, whenever a Brazilian company deals with any company included in the blacklist, transfer pricing rules and differentiate taxation will apply even if the parties are not associated.

Fraga, Bekierman & Pacheco Neto has a skilled team to assist on the development of international tax planning structures and to render any assistance in this regard.