Brazil's Normative Instruction 1634 was rectified and supplemented by Federal Revenue Normative Instruction 1729, with the promise of bringing even more transparency to the corporate market. With it, the Federal Revenue Service aims to clearly define the concept of the Ultimate Beneficial Owner ("UBO").
Normative Instruction 1634 (the Normative) – which regulates the Brazilian Corporate Taxpayer's ID registry - came into force in 2016 and was rectified and supplemented on August 2017 by Federal Revenue Normative Instruction 1729, with the promise of bringing even more transparency to the corporate market. The intention of the Federal Revenue Service in Brazil (RFB) for said instruction is to clearly define the concept of the Ultimate Beneficial Owner ("UBO").
All operating companies in Brazil have been required to submit a
statement identifying their UBO, whether they are Brazilian or
foreign. The UBO is defined as "a natural person in whose name
a transaction is conducted" or "a natural person who
ultimately, directly or indirectly, possesses, controls or
significantly influences the entity." This means companies
must identify, within their corporate organization chart, the
natural persons who are ultimately responsible for their operation
and declare it to the RFB. This measure affects all
The application of this new regulatory imposition – through the knowledge of the corporate participation chain until the identification of the UBO of the companies – has proven to be a major challenge for the prevention and avoidance of tax evasion, corruption and money laundering worldwide, as identifying the ultimate controllers of the entities help minimize these illicit behaviors. This level of transparency of the information was not required previously.
According to the Normative, the first delivery of said information had to be completed through statements by 31 December 2017 for companies whose National Corporate Taxpayer Registers (CNPJs) were issued after 30 June 2017. All other companies must deliver the statements by 31 December 2018.
More transparency, more integrity
With the UBO identification requirement brought by the
Normative, Brazil joins the current global trend of increasing
transparency, integrity and compliance of business
Before the application of this regulation, whenever companies faced financial or legal problems, the responsibility was reflected in the natural persons (individuals) who directly managed the companies. Thus, it was common for CFOs (Chief Financial Officers), Directors and people in equivalent positions to be held liable for financial scandals, for example. This being because, in the records of the Federal Revenue Service, these natural persons were listed as responsible for the entity, as the partners and controllers were often legal entities - such as foreign holdings that were not headquartered in Brazil.
The action of the Federal Revenue Service is supported and based on a global analysis of transparency, already manifested in several countries worldwide. Based on this new legal imposition, companies' statements are disassembled in such way that companies begin to inform their entire corporate chain, thereby resulting in greater transparency to the market. Ultimately, this helps avoid practices such as the use of tax havens or concealment of shareholders.
TMF Group's offering is aligned with the trend of the tireless pursuit of compliance and transparency in companies. Always looking to help our clients to meet their legal obligations, we offer the service of UBO's registration, focusing especially on companies that work with foreign partners.
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.