Brazil: Regulations Implementing Constitutional Amendment 87/2015 - Division Of The ICMS Tax In Interstate Transactions With Final Consumers

As reported in a previous edition, Constitutional Amendment 87 has changed how the State VAT (Tax on the Circulation of Merchandise and Services, or ICMS) is divided in transactions with goods and the performance of transportation services for a final consumer in another state.

In order to regulate this important change to the ICMS tax, the National Finance Policy Council (CONFAZ) has enacted the following ICMS Conventions:

(i)  Convention 93/2015 – this Convention details the most significant changes introduced by Constitutional Amendment 87, including the calculation of the tax basis, determination of taxpayers responsible for payment and the division of ICMS revenue (between the state of origin and the state of destination).

(ii)  Convention 153/2015 – governs the calculation of the tax basis and ICMS revenue sharing, taking tax breaks into account.

These rules became effective on January 1 and must be followed by all taxpayers.

THE STATE OF SÃO PAULO CHANGES ICMS TAXATION OF TRANSACTIONS INVOLVING SOFTWARE

Despite the judicial discussions concerning VAT taxes on software transactions (municipal Services Tax – ISS, state ICMS tax, or no tax), the National Finance Policy Council (CONFAZ) enacted ICMS Convention 181 in December, 2015, which authorizes several Brazilian states to reduce the calculation basis of the ICMS tax for transactions involving software, electronic games, applications and electronic files, regardless of their carrier media (physical, digital, or otherwise), so that the tax burden must be over 5% of the transaction amount (states can decide what rate to use, so long as it is not less than the 5% minimum).

In light of the Convention, tax authorities might take a position that results in the levy of the ICMS tax on transactions involving software (whether custom-made or not) that is transmitted via download or electronic files accessed via streaming.

In this context, the state of Sao Paulo has issued Decree 61,791 to change the internal rules regarding the ICMS calculation basis so that the tax burden will be 5% of the transaction amount, including the value of the software. Before the new rule, the basis was twice the market value of the carrier media (e.g., CDs, flash drives, etc.).

However, the decree determines that the ICMS tax due on transactions involving software transmitted via download or electronic files accessed through streaming will not be levied, at least until the government defines where the triggering event for the tax occurs (to determine to which state the ICMS tax must be paid).

Brazilian Federal Revenue Department creates the Special Method for Industrial Warehouses under Computerized Customs Control of the Public System of Digital Bookkeeping (RECOF-SPED)

The Special Method for Industrial Warehouses under Computerized Customs Control (RECOF) is a Brazilian 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 either for export or the domestic market, with the suspension of some taxes and duties

Due to the high cost and complexity of implementing this customs method, the Brazilian Government has decided to improve it by providing a more flexible procedure based on Digital Tax Bookkeeping (EFD), Electronic Invoice (NF-e) and the Brazilian Integrated Foreign Trade System (SISCOMEX), under a new regulation (Normative Instruction 1,612/2016).

The National Finance Policy Council (CONFAZ) standardizes the list of goods subject to the ICMS tax substitution system (ICMS-ST)

ICMS Convention 92, enacted by the National Finance Policy Council (CONFAZ), standardizes the list of goods subject to the ICMS tax substitution system (ICMS-ST) or anticipated ICMS-ST. Therefore, as of January 1, the ICMS-ST only applies to the products listed in that Convention. This has resulted in a considerable number of products being excluded from this taxation method.

In addition, the Convention includes a seven-digit code (CEST) that identifies the products subject to the ICMS-ST or anticipated ICMS-ST, which must be included in the tax invoice by the taxpayers.

CSRF Denies the Deductibility of IOE Calculated on the Previous Year's Equity

On January 20, 2016, the Higher Chamber of Tax Appeals ("CSRF") held that Interest on Equity (IOE) calculated on the previous year's equity is not deductible from the income tax and CSLL tax calculation basis. Until then, this court had not examined this issue.

It bears noting that this CSRF decision is not in keeping with the position adopted by the Superior Court of Justice, which, in 2009, decided a case regarding this matter. In that case, it held that tax law does not prohibit the deductibility of the IOE calculated on the previous year's equity.

Brazilian Government Creates a Program to Regularize Assets not Declared by Brazilian Taxpayers

On January 14, 2016, Law 13,254 was published, creating a program ("RERCT") to regularize undeclared foreign assets held abroad by Brazilian taxpayers.

The RERCT program applies to all resources, assets or rights of lawful origin, such as bank deposits, capitalization transactions, loans and exchange transactions, equities, intangible assets, real estate, aircraft, and others.

The amount to be regularized will be subject to the income tax at a 15% rate, and a fine of 100% on the tax, for a total tax rate of 30% on the amount to be repatriated.

Those who take advantage of the RERCT will have their criminal liability for the crimes it provides for extinguished.

A taxpayer who wants to participate in the program must submit a unified statement of regularization to the tax authorities and to Central Bank of Brazil.

The deadline to participate in the RERCT program is 210 days from the date the regulations that govern the program become effective.

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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