Recent changes to the Brazilian Tax Haven List may impact tax planning for various sectors

Publication September 2016


Introduction

On 14 September 2016, the Brazilian tax authorities published the Normative Instruction (NI) Nr. 1,658 dated 13 September 2016 in the Official Journal of Brazilian Federal Executive. This NI amends Brazilian Tax Haven List that was first published in 2010. The changes adversely impacts the tax characterization of, amongst others, Irish leasing transactions and Austrian holding companies as of 1 October 2016. These changes are likely to impact multinational enterprises (MNEs) that invest in, or do business with Brazil.

Impacted sectors

The changes are likely to impact multinational enterprises (MNEs) that do business with Brazil as of 1 October 2016, amongst other in the following sectors:

  1. Leasing: The inclusion of Ireland in the Brazilian Tax Haven Blacklist should have an immediate impact on the many airplanes that are currently leased by Brazilian airliners from Irish leasing companies. As of 1 October, lease payments made by the Brazilian airliners will become subject to a 25% withholding of tax where such payments were previously exempt.
  2. Investments: Several MNEs structure Brazilian investments through holding companies located in Austria or the Netherlands. Those structures may still work as Brazil does not impose a withholding of tax on dividends. However, financing arrangements may be a point of attention because of more strict thin capitalisation requirements if funds are lent to a Brazilian subsidiary.

The above is a selection of examples of impacted structures. However, this is not meant to be a complete overview. For more information on reviewing structures and solving potential exposures you can contact us.

Relevant changes

The newly published NI 1,658/16 amends both the Blacklist and the Greylist as follows:

  1. The inclusion of Ireland on the Blacklist.
  2. The replacement of the Netherlands Antilles on the Blacklist by Sint Maarten and Curacao.
  3. The removal of Saint Kitts and Nevis from the Blacklist.
  4. The inclusion of Austrian holding companies on the Greylist (without the below burden of proof for “substantial economic activities”).
  5. Insertion of a further description of “substantial economic activities” for purposes of characterizing Dutch and Danish holding companies:  according to this new description,  entities that are not engaged in a “substantial economic activity” should not be qualified as being subject to a privileged tax regime. This is amongst others the case if they have an operational capacity that is sufficient to perform its core activities in its residence jurisdiction.  Specifically, such operational capacity may be evidenced, among other factors, by the presence of an appropriate number of qualified employees and the existence of reasonable infrastructure in order to perform management activities and make decisions (i) on the development of actions with the purpose of earning income from the invested assets; or (ii) on the management of equity interests with the purpose of earning income through profits distributions and capital gains.

Impacted sectors

The changes are likely to impact multinational enterprises (MNEs) that do business with Brazil as of 1 October 2016, amongst other in the following sectors:

  1. Leasing: The inclusion of Ireland in the Brazilian Tax Haven Blacklist should have an immediate impact on the many airplanes that are currently leased by Brazilian airliners from Irish leasing companies. As of 1 October, lease payments made by the Brazilian airliners will become subject to a 25% withholding of tax where such payments were previously exempt.
  2. Investments: Several MNEs structure Brazilian investments through holding companies located in Austria or the Netherlands. Those structures may still work as Brazil does not impose a withholding of tax on dividends. However, financing arrangements may be a point of attention because of more strict thin capitalisation requirements if funds are lent to a Brazilian subsidiary.

The above is a selection of examples of impacted structures. However, this is not meant to be a complete overview. For more information on reviewing structures and solving potential exposures you can contact us.


Recent publications

Subscribe and stay up to date with the latest legal news, information and events...