Law no. 13.254/2016 concerning the amnesty program for assets held outside Brazil and non-declared to the Brazilian Federal Revenue ("RFB") and to the Brazilian Central Bank ("BACEN") was published today (January 14, 2016). It presents taxpayers with an opportunity to disclose ownership of undeclared assets held outside the country with the benefits of (i) reduced taxes and penalties, and (ii) a general amnesty for criminal purposes. This is an unique opportunity that will not be presented again so soon.
To put this measure in perspective, Brazilian tax authorities are currently engaged in efforts to improve cross-border exchange of information. In 2015, Brazil started the automatic exchange of information with the United States, receiving, according to the RFB, data of approximately 25,000 bank accounts held by Brazilians in that country. In addition, in 2018, Brazil will start the automatic exchange of information with more than 60 countries that signed the Common Reporting Standard ("CRS"), providing and receiving information regarding the years of 2016 and 2017, as well as the following years.
According to the new law, the amnesty program will be applicable to assets held outside the country or already remitted to Brazil with a lawful origin. The lawful origin must be proved through evidence of origin. The President vetoed the possibility of including in the amnesty "jewelry, precious stones or metals, works of art, antiquities with historic or archaeological value, pets and genetic material for animal breeding".
The assets included in the amnesty program must be recorded in the name of the taxpayer, a trust, a foundation or a pass-through entity; or be kept by an individual or a company, with legal personality or not, for the custody, deposit, investment, possession or property on behalf of the beneficial owner, his representative or agent. Otherwise, the assets may not be included in the amnesty program (for example: assets held in the name of a relative, as if he/she owned them, without any formal agreement of deposit or custody).
To join the amnesty program, the applicant will be required to:
(i) Fill out the Amnesty Statement ("Declaração Única de Regularização");
(ii) Amend the Annual Income Tax Return ("Declaração de Ajuste Anual" – "DIRPF") of the calendar year 2014 to include the new information;
(iii) Amend the Report of Foreign Assets ("DCBE") of the calendar year 2014;
(iv) Have documents that prove the lawful origin of the declared assets, to be presented to the tax authorities when required to do so;
(v) For financial assets totalling more than USD 100,000, request and authorize the foreign financial institution to send information regarding the balance of the assets on December, 31, 2014, to a Brazilian financial institution, which will inform that to the RFB; and
(vi) Pay Income Tax ("IR"), at a 15% rate on the declared assets amount, plus a penalty of 100% of such amount (i.e., a combined tax and penalty burden of 30%).
The calculation of the amounts to be declared will be based on the market value of the assets on December, 31, 2014.
The conversion of the foreign currency to the U.S. Dollar, and from the U.S. Dollar to Brazilian Reais, will also be carried out by using the exchange rate of December, 31, 2014. Therefore, the substantial appreciation of the U.S. Dollar against the Brazilian Real in 2015 will not be included in the calculation of the IR.
Compliance with all the amnesty program's conditions extinguishes the liability for crimes related to tax evasion (evasion, forgery of documents and use of forgery document to evade, false representation to mislead or misinform in the asset statement, and money laundering when the object of the crime is an asset, right or amount derived, directly or indirectly, from the tax evasion).
Taxpayers that are public officials, as well as their spouses or relatives, may not join the amnesty program.
The deadline to join the amnesty program will be 210 days, counted from the enactment of implementing regulations by the RFB. It is expected that these regulations will be enacted in March, 2016.
Those who plan to join the amnesty program must gather the maximum number of documents to demonstrate the origin of the relevant assets. The tax authorities are likely to audit these documents, and the proof of lawful origin is essential to avoid the exclusion from the program.
In case of exclusion from the program, the IR will become due (for individuals, in accordance with the progressive scale, of up to 27.5%), plus a penalty (in the case of tax evasion, the penalty is of 150%) and interest, less the amount already paid under the amnesty program.
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.