On May 19, 2015, the Brazilian Federal Government issued Decree 8,451/2015, which provides for a zero tax rate of the Social Contributions on Total Revenues ("PIS/COFINS") levied on certain revenues derived from (i) monetary variations, according to the exchange rate, as well as (ii) hedging transactions carried out in the stock market, or the commodities and futures market ("BM&F") or any organized over-the-counter market.

In the first scenario, monetary variations based on the exchange rate must derive from the export of goods and services or from obligations undertaken by legal entities, including loans and funding transactions.

With regard to hedging transactions, their purpose must be the protection against risks related to fluctuation of price or rate, the object of the negotiated agreement must be related to the operating activities of the corporation and, also, this agreement must be aimed at protecting rights or obligations of the corporation.

These modifications to existing legislation are related to the ones carried out by Decree 8,426/2015, which reinstated the rates of PIS/COFINS levied on financial income in general (including those resulting from hedging transactions), earned by companies subject to the non-cumulative tax regime, respectively to 0.65% and 4%. Both the reinstatement of these PIS/COFINS rates and the provisions of Decree 8,451/2015 will be in force as of July 1st, 2015.

Decree 8,451/2015 also regulates paragraph 5th of Article 30 of Provisional Measure 2158-35/2001, which contains provisions on the election of legal entities to tax monetary variations for purposes of the Corporate Income Tax ("IRPJ"), the Social Contribution on Net Profits ("CSLL"), and PIS/COFINS, under the accrual method, instead of the cash method. As a rule, this election may only be made in January, but in case of high fluctuations in the exchange rate, the election may be made during the calendar year.

The new Decree 8,451/2015 determines that a "high oscillation of exchange rate" occurs when, within one calendar month, the value of the United States dollar for sale calculated by the Brazilian Central Bank is subject to a positive or negative variation greater than 10%. If this variation is verified, the taxpayer may change the tax recognition regime of monetary variations in the month following the high fluctuation in the exchange rate, given that the new regime adopted will be applied to the entire calendar year.

Additionally, with regard to fluctuations that occurred in the months between January and May of 2015, the modification of the applicable regime may be performed in June, 2015.

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.