By means of Provisional Measure No. 685, dated July 21, 2015 (MP 685/2015), that creates the Tax Litigation Reduction Program (Programa de Redução de Litígios Tributários – PRORELIT), the Brazilian federal government imposed a new obligation to the taxpayers vis-à-vis the Brazilian Internal Revenue Service (IRS), which consists of filing by September 30 of each calendar year a return disclosing the set of operations involving acts or legal transactions that entail the abolition, reduction or deferral of taxes that occurred in the previous calendar year whenever any of the following events happens:
- the performed operations do not have a relevant non-tax purpose;
- the adopted form is unusual or uses an indirect legal transaction or contains a clause that changes the nature, in whole or in part, of the effects of a typical contract; or
- it deals with specific operations listed in an act to be issued by the IRS.
The taxpayer must submit a return for each set of interconnected operations already performed in accordance with the tax regulation. A return disclosing operations that have not been performed yet will be deemed a tax law consultation. If the IRS does not agree with the position adopted by the taxpayer, the taxpayer will be notified to pay the full amount of the due taxes that otherwise would be abolished, reduced or deferred. This payment can be made within 30 days either in one installment or in several installments plus default interest.
The form, term and conditions of the filing of the return, including hypotheses of exemption of this obligation, will be determined by the IRS.
A return will be considered ineffective by the IRS in any of the following cases: (a) it is submitted by whom is not responsible for the tax liabilities resulting from the reported operations; (b) the essential information for the understanding of such operations is lacking; (c) it contains a false declaration or misrepresentation; and (d) it involves the fraudulent inclusion of persons (individuals or legal entities).
Failure by the taxpayer to file the return or in any of the events described in the previous paragraph will be deemed willful omission (omissão dolosa) for the purpose of evasion or fraud and the due taxes will be charged with default interest and a fine of 150%.
The IRS and the Attorney General of the National Treasury, within their respective competencies, will enact the necessary acts to implement the procedures contemplated in MP 685/2015, which is in full force and effect as of July 22, 2015, date of its publication in the Official Gazette of the Union (Diário Oficial da União – DOU).
As a provisional measure, MP 685/2015 is effective for 120 days and within this period must be submitted to the Brazilian Congress for conversion or not in law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.