Brazil: Brazil Enacts Law On Voluntary Disclosure Of Unreported Offshore Assets

Last Updated: 4 February 2016
Article by Ana Carolina Monguilod and Edgar Gomes
Most Read Contributor in Brazil, July 2017

Economic uncertainties and past policies, including high inflation and risk of confiscation, have made many Brazilians maintain funds overseas undeclared to the Brazilian Federal Revenue Office (Receita Federal do Brasil) and to the Brazilian Central Bank (Bacen).

Such practices may have resulted in crimes, particularly in violation of tax law (tax evasion) and foreign exchange regulation (failure to report deposits abroad to Bacen).

The situation has worsened for said persons as a result of the implementation of Fatca - Foreign Account Tax Compliance Act in the United States and the possibility of automatic exchange of information between various countries (as of 2017 or 2018, depending on the commitment undertaken by each country), in accordance with the Common Reporting Standard (CRS) of the Organization for Economic Co-operation and Development (OECD).

In this context, governments have been encouraged to provide taxpayers a last window of opportunity to regularize undeclared assets. Voluntary disclosure programs have been stimulated by the OCDE to be adopted as a necessary step towards attaining an international tax compliance environment. Many countries (USA, England, Sweden, Chile, Spain, Australia, Switzerland, Italy, South Africa, the Netherlands, Portugal, Germany and France, among others) already maintain or have adopted these programs.

Brazil has followed the same path. On January 13, 2016, Law No. 13,254 established the Foreign Exchange and Tax Regularization Special Regime (RERCT) to grant amnesty on taxes and crimes pertinent to the maintenance of undeclared assets abroad. The President of Brazil has vetoed 12 of the items to the program that were approved by the Senate. Following Federal Revenue Office regulation, taxpayers will have 210 days to adhere.

We have here highlighted some of the main items of Law No. 13,254/16 regularization program:

Who can adhere?

Residents in Brazil on December 31, 2014 that have been or still are owners or holders of assets, goods or rights in periods prior to December 31, 2014.

Who cannot adhere?

(i)   Non-residents or non-domiciled in Brazil on December 31, 2014;

(ii)   Individuals convicted in criminal prosecutions regarding the crimes mentioned in (forgiven by) the Law;

(iii)  Holders of public positions, employment or functions, their spouses and blood relatives and in-laws, up to the second degree or adopted, at the time of the law's publication.

To what assets and rights is the amnesty applicable?

Only to those assets and rights originating from licit activities, understood to be those assets and rights acquired with resources arising from activities permitted or not prohibited by law, as well as the object, product or result of crimes amnestied by the Law.

What are the requirements to adhere?

Filing of a special statement and the payment of a 15% (income) tax and a 15% fine (30% in total).

What should be included in the statement?

The statement must include a detailed description of the funds, assets and rights owned on December 31, 2014 to be regularized, with their respective value stated in Brazilian Reais. In the case of non-existence account balance(s) or property rights on December 31, 2014, a description of actions taken by the individual that qualifies as among the crimes included in the amnesty as well as the assets and funds possessed must be made. More specifically, said description must include:

(i)  the declarant's identification;

(ii)   the necessary information to identify the funds, assets or rights to be regularized, as well as their owner and origin;

(iii)  the market value in Brazilian Reais of the funds, assets or rights of any specie that are declared;

(iv)  a statement that the assets or rights declared originated from licit economic activity.

The statement cannot be used as the only evidence for an investigative or criminal proceeding, or to support, directly or indirectly, an administrative proceeding of a tax or foreign exchange nature regarding the funds declared. In other words, authorities shall obtain information in addition to those declared to investigate or criminally prosecute the declarant.

How should the 15% tax and the 15% fine be calculated?

On the market value (converted to Brazilian Reais) of the goods and rights on the last business day of December 2014, according to the foreign exchange rate currency on that date.

This represents a significant advantage to taxpayers, as at that time the foreign exchange rate to the US Dollar was at approximately R$ 2.65, while at the time of this writing the rate is approximately R$4. This means that the effective aggregate cost of regularization is reduced from 30% to approximately 20%.

What else must be done following adherence?

The funds, assets and rights included in the statement must be informed in:

(i)    the income tax return for calendar year 2014 and following, in the case of individuals;

(ii)   a rectified statement to the Central Bank of assets and capital in foreign countries for calendar year 2014 and following, in the case of individuals and companies, if the same is so obligated; and

(iii)  Bookkeeping from the calendar year of the adherence and subsequently, in case of companies.

A voluntary disclosure with the payment of taxes and interest must also be made relative to 2015 earned income.

What are effects of the amnesty?

(i)   Extinction of all public administration obligations of a foreign exchange or financial nature relative to the ownership of declared assets;

(ii)   Remission of tax and a 100% reduction of fines and legal charges directly associated with these assets and rights in relation to taxable events up to December 31, 2014;

(iii)  Exclusion of the fine for the late or incomplete statement of capital owned abroad to the Central Bank of Brazil;

(iv)  Extinction of liability for numerous crimes, especially those of a tax nature or a social security nature, as well as tax evasion and money laundry (when the money laundry is associated with other crimes being amnestied).

Is it necessary to repatriate the funds (i.e., bring them back to Brazil)?

No.

Who can be excluded from the amnesty?

The taxpayer presenting false statements or documents regarding the ownership and legal condition of funds, assets or rights, or in relation the documents demonstrating the market value of the assets.

What are the effects of exclusion?

Tax, fine and interest, deducting what was already paid, without prejudice to the application of the relevant civil, criminal and administrative penalties.

The initiation or continuation of investigative proceedings regarding the origin of the funds can only occur if there is documental evidence not related to the taxpayer's statement. In other words, the excluded individual cannot be investigated or prosecuted based solely on the information declared under the program.

For how long can the Federal Revenue Service audit the taxpayers?

For five years, during which time period the person should safekeep all documents supporting the statement.

Vetoes

Several items of the Law were vetoed, but none of great impact. For instance, the possibility of including in the amnesty jewelry, precious stones or metal, works of art and domestic pets or sporting animals, as well as the payment of the tax in installments relative to real estate.

The Law is welcome, but may generate controversy. We highlighted a few points that may be considered polemic.

Taxation and fine (30%) on income presumed as earned on December 31, 2014, including funds no longer available on that date:

One cannot presume the earning of income. The income tax must be levied on income actually earned within the statute of limitation period (of five years). When this period is over, the tax can no longer be collected, even within a settlement program. According to Brazilian law, tax cannot constitute a sanctioning of unlawful acts. After the adhesion to the program and payment of the tax, taxpayers might have the right to verify exactly when the respective taxable event occurred and plead restitution of amounts overpaid.

Resources held before December 31, 2014 but no longer existing on that date:

The mandatory inclusion in the statement and taxation of amounts no longer existing on December 31, 2014 may be a great disincentive to the adhesion as, in some cases, it will be impossible to recover the history of said amounts, possibly already spent a long time ago.

It is expected that the regulation soon to be published by the Federal Revenue Service – from the publication of which the time period of 210 days to adhere to the Law will be counted – will clarify these obscurities and facilitate the participation of taxpayers in the program. Thus, it is recommended that those wishing to adhere to the program await the regulation.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.