Brazil: Tax Newsletter - Highlights Of The Month - May 2015



CSLL payable by financial institutions increased from 15% to 20%

As reported in Special Edition 90 of our Tax Newsletter, Provisional Measure 675, published on May 22, 2015, increases the rate of the Social Contribution on Net Profits (CSLL – Contribuição Social sobre Lucro Líquido, one of Brazil's corporate income taxes) payable by financial institutions from 15% to 20%. The rate hike affects private insurance and savings companies, banks, securities distributors, currency brokers, securities brokers, financing, loan and investment companies, real estate credit companies, credit card administrators, financing leasing companies, credit cooperatives, and savings and loan societies.

The provisional measure will come into effect on September 1, 2015.

PIS and COFINS on foreign exchange gains reduced to zero

On May 20, 2015, the federal government published Decree 8.451, which (i) zero-rates the social contributions PIS and COFINS attaching to gains resulting from fluctuations in foreign exchange rates, and (ii) provides that whenever a "high fluctuation in the Brazilian real exchange rate" occurs – defined as a variation of more than 10% in the value of the U.S. dollar – corporate taxpayers can, in the following month, switch from the cash method to the accrual method of accounting, or vice-versa, for the purpose of recognizing foreign exchange gains or losses. See Special Edition 89 of our Tax Newsletter for more information.

Changes to rules for listing assets available as security and precautionary attachment of assets

Instruction (Instrução Normativa) 1.565, issued by the Federal Revenue Service of Brazil (RFB – Receita Federal do Brasil) on May 11, 2015, makes changes to the rules for requiring tax debtors to submit a list of assets available as security and for seeking precautionary attachment of assets, but does not change the amount of the tax debts needed to trigger the procedures. Click here to read more.

RFB holds public consultation on taxation of net earnings and gains in the financial and capital markets

The RFB disclosed, for comment by the public, draft Instruction that will govern taxation of net earnings and gains in the financial and capital markets, revoking the current Instruction 1.022/2010.

The draft Instruction seeks to consolidate legislation and regulations issued since 2010, and to deal with a number of specific points, such as (a) conditions for the tax exemption available to individuals on earnings distributed by Real Estate Investment Funds (FIIs – Fundos de Investimento Imobiliário), (b) taxation of Structured Transaction Certificates (COEs – Certificados de Operações Estruturadas), subject of recent regulations by the National Monetary Council and the Central Bank of Brazil (BACEN), (c) the reduction in income tax rates made under Law 12.431/2011 on earnings from infrastructure debentures and investment funds; and, as contemplated under Law 13.043/2014, (d) the tax exemption for trades in shares issued by small and medium businesses, (e) taxation of loans of stocks and other securities, and (f) taxation when units in investment funds or clubs are paid in by delivery of financial assets.

RFB rules that foreign shareholders that pay in shares by assigning intangible assets must registered in SISCOSERV

On May 5, 2015, the RFB issued COSIT Tax Ruling (Solução de Consulta COSIT) 105, in which it concluded that when shares in a company held by a foreign shareholder are paid in by assignment of intangible assets, the transfer must be registered in SISCOSERV, Brazil's international trade information platform. In contrast, when shares are paid in in money, the transaction is not registrable in SISCOSERV, since there is no cross-border movement of assets or services, and money is not listed in the Brazilian Nomenclature for Services, Intangibles and Other Transactions producing gains or losses.

Recent Decisions

CARF decides that the economic basis for recording goodwill cannot be questioned

In a decision published on March 31, 2015, the Administrative Tax Appeals Council (CARF – Conselho Administrativo de Recursos Fiscais) cancelled an assessment that had disallowed the economic basis for goodwill recorded in a corporate transaction. According to the lead opinion, the fact that the RFB had not contested any of the elements identified in the accounting report indicated that it had presumed that the objective of the corporate transaction was to acquire commercial goodwill. According to the CARF, the RFB could not simply disregard the conclusion, in the accounting report, that the amounts recorded and paid by the taxpayer reflected an expectation of future profitability and not the acquisition of commercial goodwill.


Recent Decisions

STF approves binding Restatement of Precedents on ICMS in import transactions

On May 27, 2015, the STF approved Restatement of Precedents (Súmula) 661, stating that ICMS is to be charged when the imported goods clear customs and therefore the location of the goods' final destination in Brazil is irrelevant.

Full Panel of the STF holds that Paraná's tax benefits are unconstitutional

On May 19, 2015, the full panel of the STF declared that part of the provisions of Paraná State Law 14.985/2006 is unconstitutional, and decided that its decision would only produce effects from the date of judgment. This is the first decision by the STF on unilateral tax benefits where the court decided to make the effects of its decision forward-looking only. In the words of reporting Justice Luis Roberto Barroso: "To undo retroactively all these years of benefit would have unforeseeable and possibly unjust effects, at least in relation to the private parties that followed the law."

STF stays the effects of decisions on the timing of real estate transfer tax contested by the Municipality of Salvador, Bahia

By order issued on May 2015, 11, Justice Ricardo Lewandowski granted the Municipality of Salvador's petition to stay decisions by the Bahia Court of Appeals holding that the municipal real estate transfer tax (ITBI – Imposto sobre a Transmissão de Bens Imóveis Inter-Vivos) is payable only when ownership of the property is effectively transferred (i.e., when it is registered in the Real Estate Registry) and not when the promise to purchase and sell the property is signed.

Referring to article 150, §7, of the Federal Constitution, Justice Lewandowski pointed out that the constitution allows the tax to be collected in advance, as long as advanced collection is provided for in ordinary legislation. The municipal legislation at issue deals with the time at which ITBI should be paid and not the taxable event as such, which remains the transfer of ownership and occurs only on registration of the transfer. If the transfer is not registered, the tax must be refunded.

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.

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