Brazil: BEPS: What To Expect? A Brazilian Perspective

Last Updated: 21 June 2016
Article by Edgar Gomes
Most Read Contributor in Brazil, July 2017

Motivated by the 2008-09 financial crisis, the international public opinion started to vigorously protest against international tax plannings of large multinationals enterprises. Loopholes and mismatches in tax legislations of different countries were being used to achieve significant reduction or deferral of taxes.

Although such tax plannings were in accordance with the legislation, they were deemed immoral by politicians around the world, who found it hard to explain to the public the reasons why domestic legislation permits multinational enterprises to avoid their fair share of taxes.

In November 2012, in Mexico, leaders from the 19th largest world economies and from the European Union (the so-called G20) requested the Organization for Economic Cooperation and Development (OECD) to prepare a study to tackle tax base erosion and the shifting of profits to jurisdictions with low or nil taxation, or without economic substantial activity. The OECD Base Erosion and Profit Shifting (BEPS) project was founded.

The first report regarding the project was presented at the G20 summit held in Moscow in February 2013. To address the issue, OECD recommended the development of a global action plan.

Afterwards, OECD presented more detailed reports regarding the matter and fifteen action plans were deemed essential to tackle BEPS.

These action plans aimed at addressing the tax challenges of the digital economy; neutralizing the effects of hybrid mismatch arrangements; designing effective CFC rules; limiting base erosion involving interest deductions and other financial payments, countering harmful tax practices more effectively; preventing the granting of treaty benefits in inappropriate circumstances; preventing the artificial avoidance of permanent establishment status; aligning transfer pricing outcomes with value creation; establishing mandatory disclosure rules; developing a multilateral instrument to modify bilateral tax treaties, among other goals.

The action plans were structured based on the following pillars: (i) coherent interaction of the laws of the various countries; (ii) prevalence of substance over form in order to assure the taxation in the jurisdiction in which the economic activity and the value creation is located; and (iii) transparency and certainty for businesses and governments.

After thousands of pages of public comments regarding the fifteen action plans draft reports, panels at International Fiscal Association (IFA) conferences, OECD webcasts, lectures and articles, the final versions of the action plan reports were finally made available last October 2015.

But what should we expect now?

In order to achieve the intended success, it is crucial that the OECD recommendations are implemented simultaneously and harmoniously by all countries.

A consistent approach adopting the best practices recommended by OECD is necessary both for taxpayers and tax authorities in order to enable multinational groups to structure operations with higher predictability and legal certainty, and to reduce compliance and administrative costs. Besides, it would ensure an equal treatment among multinational corporations and local companies.

In that regard, some measures depend on the OECD itself to be implemented, such as adjusting transfer pricing guidelines and the model tax convention. Other measures depend on domestic legislation changes.

There is an expectation from the OECD that countries which were involved in the discussions and agreed on the final version of the reports will adopt the recommendations. Nevertheless it is not mandatory and some countries have already shown disapproval with the final outcome.

Countries may choose not to immediately implement the recommendations, even though they agreed with them. They might prefer to wait for other countries' decisions, as stricter rules tend to reduce the attractiveness of foreign investment and obstruct the global competition for national companies.

The implementation of the recommendations by only a few countries, apart from the probable inefficiency, might result in double taxation, which OECD has always endeavored to avoid in order to promote the exchange of goods and services and the movement of capitals.

Double taxation might also occur if countries decide to cherry-pick the recommendations that will benefit them and increase tax revenue, ignoring the damages to other countries and taxpayers. This risk is even higher in countries that are already known for disrespecting tax treaties.

Moreover, the feeling that the BEPS project is intended to benefit exclusively developed countries still remains. This sensation persist event though OECD emphasizes that at least forty developing countries contributed with commentaries to the action plan reports and more than a dozen joined OECD meetings, which also involved the United Nations, the International Monetary Fund, the African Tax Administration Forum (ATAF) and the Inter-American Center of Tax Administration (CIAT).

However, this argument may not convince developing countries in giving up their sovereignty to legislate according to their own interests.

In that regard, it is inconsistent that some OECD´s member countries conducting the BEPS project continue to encourage harmful tax competition, by maintaining (i) advantageous tax regimes, (ii) treaties with matching credit and tax sparring clauses, and ( iii) mechanisms allowing taxpayers to choose the entity and the country where they wish to be taxed by, whereas at the same time these same countries are now stimulating developing countries to adopt the action plans´ recommendations and to abandon their own mechanisms of attracting foreign investment.

Also controversial is the exchange of information, whose benefits are undeniable for taxpayers and tax authorities. At IFA´s last congress in Basel, an example concerning Japan and the United States was reported. It involved a Japanese taxpayer that would have asked American tax authorities not to provide his confidential information to Japanese tax authorities as they would leak to the press. The request was not observed and the information leaked.

If that can happen in developed countries, what procedures and precautions should be adopted regarding the confidentiality of information exchanged among countries where taxpayer´s fiscal data are known to be treated with less care, and where the media is known for publishing private documents? Should the exchange of information be interrupted after the first leak or should it not even be initiated?

Brazil has already implemented some measures inspired by the BEPS Project, such as several exchange of information agreements.

Brazil has also tried to impose a mandatory disclosure program, not approved by Congress, which was unclear and generated uncertainty, and can be used as an example of rushed and misguided adoption of the OECD´s action plans.

On the other hand, it is less likely that Brazil is willing to change its domestic legislation to implement the recommendations regarding the fifteen action plans. That is due to the fact that Brazil has rules that are either stricter than the international standards, such as Brazilian CFC rules, or do not follow international standards, such as the Brazilian Transfer Pricing rules.

Therefore, it is hard to predict the future of the BEPS project, notwithstanding the fact that it is certainly an important work from the OECD, perhaps the most important study regarding international taxation in nearly a century.

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”

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.