Constitutional Amendment 87/2015 – Division of the ICMS tax in interstate transactions and provisions of services intended for final consumers

Constitutional Amendment 87 has changed how the Tax on the Circulation of Merchandise and Services (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, is divided in transactions with goods and the performance of services for a final consumer in another state. Under the new rule, the interstate rate will apply to transactions with goods or the performance of services for a final consumer in another state, whether or not this consumer is an ICMS taxpayer, and the state where the recipient is located will be entitled to collect the difference between the internal ICMS tax rate and the interstate rate.

The new rule will come into effect only on January 1, 2016. However, it is already generating a good deal of discussion on the market since the regulations to implement it have not yet been enacted.

Brazilian Federal Revenue Department eases eligibility rules for special customs methods

Normative Instruction 1,559, issued in April, introduced changes to Normative Instructions 476/2004 and 1,291/2012, which regulate the following methods:

  1. Express Customs Clearance (The Blue Line) – customs method that enables industrial companies to have their customs clearance procedures directed especially to the green channel (without examination of documents, documentary or physical verification of goods);
  2. Special Method for Industrial Warehouse under Computerized Customs Control (RECOF) – customs method that enables the beneficiary company to import or purchase, on the domestic market, inputs to be used in industrialization processes of goods destined for export, with the suspension of some taxes and duties.

According to the new rules, the minimum equity for companies to operate under these methods was reduced to BRL 10,000,000 (from the BRL 20,000,000 previously required).

Financial institutions will have an increased CSLL rate

On May 21, 2015, Provisional Measure 675/2015 was published, which increases the rate of the Social Contribution Tax on Net Income (CSLL) applied to financial institutions, such as banks and private insurance companies. For these institutions the CSLL rate will increase on September 1, 2015, from 15% to 20%.

Increase of PIS/COFINS-IMPORT rates

On June 19, 2015, Provisional Measure 668/15 was converted into the Law 13,137/15. Among the changes introduced by this law ate the PIS/COFINS-Import rates applied to the following imports:

  1. Rate for products in general: from 1.65% and 7.6% to 2.1% and 9.65%;
  2. Pharmaceutical Products: from 2.1% and 9.9% to 2.76% and 13.03%;
  3. Perfumery, toilet linen and toiletries: from 2.2% and 10.3% to 3.52% and 16.48%;
  4. Machinery and vehicles at specific NCM codes: from 2% and 9.6% to 2.62% and 12.57%;
  5. New rubber chambers and air-rubber tires: from 2% and 9.5% to 2.68% and 12.35%;
  6. Auto parts, related to the Annexes I and II of Law 10,485/ 2002: from 2.3% and 10.8% to 2.62% and 12.57%; and
  7. Paper Immune tax: from 0.8% and 3.2% to 0.95% and 3.81%.

On the other hand, the rates of PIS/COFINS-Import applicable to the import of services from abroad have been kept the same (1.65% and 7.6%).

In addition, these laws have introduced a specific provision that forbids the credit calculation on the additional amount of 1% for COFINS-Import established by Law 12,546/11. It should be noted that this provision can be challenged in court since it is not in accordance with the constitutional principle of noncumulative taxation and GATT provisions.

Important decision on the taxation of back-to-back transactions

The administrative tax appeals council (CARF) has recently decided a case involving back-to-back transactions, holding that these transactions are subject to the PIS and COFINS taxes.

Back-to-back transactions are combined import and export transactions in which the goods do not pass through the customs territory. According to CARF, the income earned in these transactions cannot be considered "revenue" derived from export operations, for which reason they are not protected by the constitutional immunity that forbids the taxation of exports by social contribution taxes, including PIS and COFINS taxes.

New rule on the taxation of profits paid to officers hired under employment contracts

In April 2015, Brazilian Federal Revenue published an Advance Tax Ruling with a controversial decision regarding the taxation of profit distributions made to company officers hired under employment contracts. According to the tax authorities, these payments are not deductible from Corporate Income Tax (IRPJ) or Social Contribution Tax on Net Profits (CSLL). However, in spite of this position by Brazilian Federal Revenue, it should be noted that there are arguments to defend the deductibility of these expenses from the calculation basis of these taxes.

E-FINANCEIRA: Federal Government creates a new ancillary obligation related to financial information

With the publication of Normative Ruling. 1,571/15, Brazilian Federal Revenue has create a new ancillary obligation, called E-Financeira, which will facilitate the exchange of information between the tax administrations of Brazil and the US, in line with the Foreign Account Tax Compliance Act (FATCA).

Among those who have to comply with this new ancillary obligation are banks, insurance companies, brokerage companies, securities dealer companies and supplementary private pension fund entities. Through E-Financeira, the taxpayer will submit to Brazilian Federal Revenue information related to the financial operations of the users of its services, such as the bank balance of any deposit account or financial investments.

E-Financeira will first be due in May 2016, in reference to data from December 1, 2015. With this new obligation, the remittance of the Financial Transactions Statement (DIMOF) may be discontinued in 2016.

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.