As from January 1st, 2014, Switzerland may be deemed to be a viable jurisdiction for foreign companies that intend to invest in Brazil.

On June 4, 2010, the Secretary of the Brazilian Federal Revenue Office (Receita Federal do Brasil – RFB) issued RFB Normative Instruction No. 1037 (IN 1037/2010), which contains a list of the so-called "favored taxation countries". The inclusion of Switzerland in this list was temporarily suspended by the RFB´s Secretary by means of Executive Declaratory Act No. 11, of June 24, 2010 (ADE 11/2010).

For Brazilian tax purposes "favored taxation country or dependency" (país ou dependência com tributação favorecida) means any country or dependency of a country that does not impose tax on income or, when imposes, it is a low-tax country, in which the applicable income tax rate is equivalent to any percentage varying between zero and 20% (maximum)1.

Now, as a result of RFB Normative Instruction No. 1474, of June 18, 2014 (IN 1037/2010), published in the Official Gazette of the Union (Diário Oficial da União – DOU) of June 20, 2014, is no longer considered a "favored taxation country".

However, certain Swiss legal entities are classified as "privileged fiscal regime" (regime fiscal privilegiado).

"Privileged fiscal regime" means any jurisdiction that met one or more of the following requirements: (i) it does not tax income or where the maximum applicable tax income rate is below 20%; (ii) it grants fiscal advantages to a non-resident individual or legal entity: (a) without requiring that substantial economic activity be made in the country or dependency; or (b) conditioned to the non-exercise of substantial economic activity in the country or dependency; (iii) it does not tax the earnings obtained outside its territory or imposes a maximum applicable rate below 20% to such earnings; (iv) it does not permit access to information regarding the capital stock structure, ownership of assets or rights or to the economic transaction entered into between the parties2. All these percentages may be reduced or changed at any time by the Executive Branch.

According to item (x) of article 2 of IN 1037/2010, as amended by IN 1474/2014, with respect to Switzerland, the expression "privileged fiscal regime" comprises the regimes applied to the legal entities incorporated in the form of holding company, domiciliary company, auxiliary company, mixed company and administrative company whose tax treatment, as well as the rules applicable to other legal forms of incorporation of legal entity by rulings issued by tax authorities, which in any of these cases result in a corporate income tax at a combined rate lower than 20%, considering the Swiss federal, cantonal and municipal legislations.

Furthermore, the Hungarian KFT offshore companies are also excluded from the list of privileged fiscal regimes.

IN 1474/2014, which expressly revokes item (lviii) of the caput of article 1 and item (vi) of the caput of article 1 of IN 1037/2010 and ADE 11/2010, came into force on the date of its publication in the DOU but is effective as of January 1st, 2014.


1 This definition is contained in article 24 of Law 9.430, of December 27, 1996, which introduced transfer pricing regulations in Brazil.

2 This definition is provided for in article 23 of Law No. 11.727, of June 23, 2008, which approved new wording for articles 24-A and 24-B of Law 9.430/96. Article 30 of Law 11.941/2009, clarified that it is not necessary to attend simultaneously and cumulatively all the requirements listed above and that it is sufficient to attend only one for a country or dependency to be treated as a privileged fiscal regime.

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