This is a special post of our series on Brazilian tax treaties. In this post we will address the details of the Tax Information Exchange Agreement ("TIEA") and of the Intergovernmental Agreement ("IGA") signed between Brazil and the United States.

In recent years, the increased mobility of capital and of High Net Worth Individuals ("HNWI") has put a strain on the enforcement of domestic tax legislation around the world. Brazilian tax authorities, for instance, have had the ability to request, without a judicial order, relevant information of domestic and foreign taxpayers to domestic financial institutions since the publication of Supplementary Law 105/2001. The information held by foreign financial institutions, however, used to be of difficult access to Brazilian tax authorities, and in a context of globalization and increased cross-border business and financial transactions, this difficulty of obtaining relevant information limited their investigative powers.

At least prior to 2007, before the Birkenfeld case,1 United States tax authorities faced a comparable predicament: lack of relevant information prevented them from fully investigating the activities of United States taxpayers offshore. In their case, this limitation was even more pronounced, due to the fact that the United States taxes its individuals on the basis of citizenship, not only residence.

Concerned with the potential undisclosed foreign earnings that had up until then been protected by bank secrecy, on March 18, 2010, the United States enacted what would later change the entire landscape of cross-border exchange of tax relevant information between sovereign nations: the Foreign Account Tax Compliance Act ("FATCA"). In general terms, FATCA requires Foreign Financial Institutions ("FFIs") and Non-Financial Foreign Entities ("NFFEs") to disclose financial information of United States taxpayers to the United States government, with a sanction for non-compliance set at 30% of certain U.S. source payments.2

After the enactment of FATCA, sovereign nations saw themselves pushed by domestic financial institutions to either allow them to provide taxpayer information to the United States government, or to have them subject to 30% taxation on all payments arising from US sources. One of these sovereign nations is Brazil, which in 2007 had signed, but not ratified, a Tax Information Exchange Agreement ("TIEA") with the United States, which would at least allow government-to-government exchange of information. It is safe to say that the enactment of FATCA accelerated both the ratification of the TIEA in Brazil (which occurred six years later, in 2013) and the signature of the Intergovernmental Agreement ("IGA") to implement FATCA provisions in the Country. We will address these two agreements in the topics below.

Tax Information Exchange Agreement ("TIEA")

Overview of the Agreement

Decree 8,003, published on May 16, 2013, contains the text of the Tax Information Exchange Agreement ("TIEA") between the Government of the United States of America and the Government of Brazil. The TIEA facilitates the exchange of information that may be relevant for the tax administrations of the two Countries, for the purposes of (i) determination, assessment, enforcement or collection of tax with respect to persons subject to the taxes described in Article 3rd of the TIEA, and (ii) investigation or prosecution of criminal tax matters.

The TIEA is naturally broader in scope than exchange of information under a Bilateral Income Tax Treaty ("BITT"), which is why it applies to several U.S. and Brazilian taxes. They are:

  • U.S. Taxes

Federal Income Taxes; Federal taxes on Self-Employment Income; Federal Estate and Gift Taxes; and Federal Excise Taxes.

  • Brazilian Taxes

Individual and Corporate Income Taxes ("IRPF" and "IRPJ"); Excise Tax on Industrialized Products ("IPI"); Tax on Credit Transactions ("IOF-Credit"); Tax on Foreign Exchange Transactions ("IOF-FX"); Tax on Insurance Transactions ("IOF-Insurance"); Tax on Transactions with Bonds and Securities ("IOF-Bonds"); Tax on Gold as a Financial Asset or Exchange Instrument ("IOF-Gold"); Tax on Rural Property ("ITR"); Contribution for the Program of Social Integration ("PIS"); Contribution for the Financing of Social Security ("COFINS"); and Social Contribution on Net Profits ("CSLL").

Of all the Brazilian taxes subject to the TIEA, only IRPF, IRPJ, CSLL and the Withholding Income Tax ("IRRF") are regarded as "taxes on income" within the scope of Brazilian BITTs.3

Jurisdiction of the TIEA

TIEA information shall be exchanged by the competent authority of the requested State (Brazil or the United States). That duty to exchange information, however, is applicable irrespective of whether the person to whom the information relates is, or whether the information is held by, a resident or national of one of the two States.

Exchange of Information

There are 02 (two) forms of exchange of information made possible by the TIEA and by other agreements signed by Brazil. They are: the automatic exchange of information (which is subject to the implementation of appropriate legal and technical structures) and the exchange of information upon request.

  • Automatic Exchange of Information ("AEOI")

AEOI is not expressly provided for by the TIEA, but as expressed in the IGA that follows it in 2015, "Article 1st of the TIEA authorizes exchange of information between the two Countries, including [AEOI]." Article 1st of the TIEA makes reference to Article 10, which states that competent authorities shall adopt procedures that facilitate the implementation of the TIEA, "including such additional forms for the exchange of information as shall promote the most effective use of information."

  • Exchange of Information upon request

In accordance with Article 5th of the TIEA, competent authorities from both Countries must provide, upon request, all the information required for the purposes of Article 1st. Competent authorities must provide the requested information irrespective of whether (i) they need this information for their own tax purposes, or (ii) the conduct under investigation by the other party would constitute a crime under their own laws.

From the standpoint of the party requesting the information, the request must be as specific as possible. From the standpoint of the party providing the information, they must specify and inform to the other party all the procedures necessary to comply with the request, such as the time and place for the collection of information.

Tax Investigations Abroad

The United States may request, with reasonable notice, that Brazil allows U.S. officials to enter its territory, as permitted under domestic law and as notified to the competent authorities of Brazil, for the purpose of interviewing individuals and examining records. Brazil is entitled to the same right under Article 6th.

In addition, the competent authority's representative may be able to attend a tax examination in the territory upon request, reporting as soon as possible the time and place of the examination, as well as any corresponding terms and procedures. It is important to emphasize that the requested party is formally in charge of all the relevant examination.

Possibility of Declining a Request

Although the general purpose of the TIEA is to facilitate the exchange of information between the United States and Brazil, it is possible for competent authorities of either party to decline a request for information issued by the other.

The competent authority of the requested party may decline a request in 03 (three) circumstances: (i) lack of conformity of the request with the terms of the TIEA; (ii) if the requesting party did not pursue all available courses of action in its own territory to obtain the information; or (iii) if the disclosure of the requested information is contrary to the public policy of the request party.

Besides, the TIEA shall not impose upon a party any obligation to provide information subject to legal privilege, trade, business, industrial, commercial or professional secrecy or trade process (as long as the information is not treated as "secret" solely because of bank secrecy), nor to carry out administrative measures at variance with its laws or measures that would discriminate against a national.


The taxpayers are protected by terms of confidentiality, so all information received by any competent authority under the agreement shall be treated as confidential and may only be disclosed to persons or authorities in the jurisdiction of the requesting Country under express written consent. The information shall be used only for the purposes of the agreement.

Intergovernmental Agreement ("IGA")

Overview of the Agreement

Decree 8,506, published on August 24th, 2015, contains the text of the Agreement between the Government of the United States of America and the Government of Brazil, aiming to improve international tax compliance and to implement FATCA in Brazil.

This Intergovernmental Agreement ("IGA") supplements the TIEA signed by Brazil and the U.S. in March, 2007, in order to improve international co-operation regarding tax matters, through exchange of information. The IGA allows Brazilian financial institutions to comply with FATCA provisions (under preexisting law, they would be unable to provide information about U.S. citizens to a foreign tax authority), and in return, provides Brazilian tax authorities with financial information of Brazilian taxpayers holding financial investments in U.S. financial institutions.

Article 1st lists several definitions that one must use for the proper interpretation of the IGA. Among them, on item "dd", is the definition of "Account holder". For purposes of the IGA, "the term 'Account Holder' means the person listed or identified as the holder of the Financial Account by the Financial Institution that maintains the account." Because the English version of the IGA uses the word "person," it is clear that the agreement applies both to individuals and legal entities. This is further elucidated by Article 2nd, which explicitly mentions that information about legal entities will also be exchanged between competent authorities.

The definition of Account Holder also permits authorities to inform about the final beneficiary, or the beneficial owner of the income (or investment). In this sense: "A person, other than a Financial Institution, holding a Financial Account for the benefit or account of another person as agent, custodian, nominee, signatory, investment advisor, or intermediary, is not treated as holding the account for purposes of this Agreement, and such other person is treated as holding the account. For purposes of the immediately preceding sentence, the term 'Financial Institution' does not include a Financial Institution organized or incorporated in a U.S. Territory. In the case of a Cash Value Insurance Contract or an Annuity Contract, the Account Holder is any person entitled to access the Cash Value or change the beneficiary of the contract. If no person can access the Cash Value or change the beneficiary, the Account Holder is any person named as the owner in the contract and any person with a vested entitlement to payment under the terms of the contract. Upon the maturity of a Cash Value Insurance Contract or an Annuity Contract, each person entitled to receive a payment under the contract is treated as an Account Holder."

Obligations to Obtain and Exchange Information with Respect to Reportable Accounts

There is a clear difference between the levels of taxpayer information to which both competent authorities are entitled. In general terms, the U.S. government requests a much more detailed list of information from the Brazilian government than the opposite.

As of the publication of Decree 8,506, the Government of Brazil is legally bound to obtain and exchange information related to the identification of the U.S. Person who is an Account Holder and, for a Non-U.S. Entity controlled by a U.S. Person, the identification of both. This information includes the relevant account number and also the identification of the Reporting Brazilian Financial Institution.

Furthermore, the Financial Institution will also have to exchange information such as: the account balance or value associated with the appropriate reporting period (e.g., at the end of the relevant calendar year or, if the account was closed during such year, immediately before its termination); the total gross amount of interest, dividends and other income generated as a result of assets held by Custodial Accounts; and also the total gross amount of interest paid to the Account Holder in the case of a Depository Account.

On the other hand, the U.S. Government is required to report the following information: the identification of the Account Holder (both a natural person and a legal entity) and the Reporting U.S. Financial Institution; the account number; the total gross amount of interest paid in the case of a Depository Account and the gross amount of source dividends paid or credited to the relevant account. The U.S. Government is also required to provide information of the total gross amount of other U.S. source income paid or credited to the relevant account, as long as this duty to provide information is established by domestic law.

As we stated before, in accordance with FATCA, if the Brazilian Reporting Financial Institution fails to comply with the agreement, it may become subject to a 30% U.S. Withholding Tax with respect to any payment of a list of withholdable payments from a U.S. source.

Time and Manner of Exchange of Information

In accordance with Article 3rd, Paragraph 5th, of the IGA, the parties consent to exchange the information described in the last topic within nine months after the end of the calendar year to which the information is related. For instance, Brazil has until September, 2017, to exchange information related to the calendar year of 2016.

The agreement establishes that the U.S. must exchange all of the listed information from 2014 onwards. As for Brazil, the IGA states as follows:

  1. Related to 2014: information regarding the identification of both Account Holder and Reporting Financial Institution, account number and its balance or value;
  2. Related to 2015: item "a" plus information regarding Depository Accounts and total gross amount of interest, dividends and other income of Custodial Accounts;
  3. Related to 2016 onwards: all the information listed on Article 2nd, Paragraph 2nd(a), of the IGA.

Once the agreement was signed and became applicable, the parties had until September 2015 to notify each other that they were satisfied with the infrastructure developed to exchange taxpayer information with both effectiveness and confidentiality. All information exchanged under the IGA must remain confidential and subject to the provisions of the TIEA.

Application of FATCA to Brazilian Financial Institutions

Provided Brazilian Financial Institutions abide by the obligations of the IGA, they shall be treated as FATCA compliant, and therefore not subject to the 30% Withholding Tax under Section 1471 of the U.S. Internal Revenue Code. These obligations are: (a) identify U.S Reportable Accounts and report annually to the Brazilian competent authority; (b) report annually (for the years of 2015 and 2016) to the Brazilian competent authority the name of each Non-Participating Financial Institution to which it has made payments and their amount; (c) register on the IRS FATCA network; and, (d) if acting as a qualified intermediary, as a foreign partnership or as a foreign trust, withhold 30% of any U.S. source Withholdable payment to any Non-Participating Financial Institution.

Furthermore, in order to be FATCA compliant, a Brazilian Financial Institution not described in (d) above, which makes a payment or acts as an intermediary with regard to a Payment subject to Withholding in the United States for any Non-Participating Financial Institution, must provide to any immediate payor of this Payment subject to Withholding in the United States the information required for withholding and report related to such payment.

It is important to mention that the Brazilian Financial Institution is not required to impose the 30% Withholding Tax with regard to an account held by a "recalcitrant account holder" (as defined in Section 1471 (d)(6) of the U.S. Internal Revenue Code), nor is it required to close such account, as long as the U.S competent authority receives the information established by the IGA.

Related entities and branches that are Non-Participating Financial Institutions solely due to the expiration of the transitional rule for limited Foreign Financial Institutions and for limited branches under relevant U.S. Treasury Regulations should be treated as subject to the terms of the IGA and as deemed-compliant or exempt beneficial owners, as long as: (a) each of these branches or Related Entities identifies itself separately as a Non-Participating Financial Institution; (b) each one identifies its U.S. accounts and reports the required information; and (c) such related entity or branch does not specifically solicit U.S. accounts held by persons that are not resident in the jurisdiction where such branch or related entity is located or accounts held by Non-Participating Financial Institutions that are not established in the jurisdiction where such branch or related entity is located, and such branch or related entity is not used by the Brazilian Financial Institution or any other related entity to circumvent the obligations under the IGA or under Section 1471 of the U.S. Internal Revenue Code, as appropriate.

Besides, in accordance with Sections 1471 and 1472 of the U.S. Internal Revenue Code, the Brazilian retirement plans described in Annex II of the IGA and each Non-Reporting Brazilian Financial Institution shall be treated as deemed-compliant Foreign Financial Institutions or as exempt beneficial owners by the United States.

Mutual Commitment to Continue to Enhance the Effectiveness of Information Exchange and Transparency

In accordance with Article 6th, Paragraph 1st, of the IGA, the U.S. expressly acknowledges the need to achieve "equivalent levels" of reciprocal automatic information exchange with Brazil. Though this statement may seem at odds with the fact that Brazil and the U.S. are entitled to different levels of information under the IGA, the real gist of this provision is to emphasize the joint efforts towards a streamlined procedure for the automatic exchange of information between the two Countries.

Of particular relevance is Article 6th, Paragraph 2nd, which states that both Countries will "work together, along with Partner Jurisdictions, to develop a practical and effective alternative approach" to implement FATCA for foreign passthrough payments and for payments of gross proceeds subject to withholding, with the intent to reduce applicable costs.

The "e-Financeira"

Since 2008, due to the issuance of Normative Instruction RFB 811/2008, Brazilian Financial Institutions, Credit Cooperatives, Savings and Loan Associations and entities authorized to operate in the stock market had been required to file a Declaration of Financial Activities ("DIMOF") before the Federal Revenue of Brazil ("RFB"), in order to report the financial information of users of their services for tax purposes. After the enactment of the TIEA, however, the Brazilian Government replaced DIMOF by a new filing obligation called "e-Financeira", via the issuance of Normative Instruction RFB 1,571/2015.

The e-Financeira is a system through which several financial institutions are required to share information such as: the value of any Depositary Account, the value of any financial application and its gross income, the acquisition of foreign currencies, and details of cross-border transactions. The e-Financeira must be provided by legal entities authorized to structure and sell supplementary retirement plans; legal entities authorized to create and manage Individual Programmed Retirement Funds ("FAPI"); legal entities that have as a main or accessory purpose obtaining, intermediating or investing funds of their own or of third parties, including consortium operations, in domestic or foreign currency, or the custody of amounts owned by third parties; and the insurance entities authorized to structure and sell individual insurance plans. The e-Financeira must also be provided to RFB by the entities supervised by the Brazilian Central Bank ("BACEN"), by the Securities and Exchange Commission ("CVM"), by the Superintendence of Private Insurance ("SUSEP"), and by the National Complementary Welfare Superintendence ("PREVIC").

It is important to highlight that Normative Instruction RFB 1,571/2015 expands the list of entities required to share relevant information with RFB. Previous Normative Instruction RFB 811/2008 made reference only to the banks, credit cooperatives, savings and loan associations and entities authorized to operate in the stock market.

Among the information that must be provided by the persons mentioned above are the following (the full list is available in Article 5th of Normative Instruction RFB 1,571/2015):

  • The account balance as of the last working day of the year of any depository account, including savings accounts, taking into consideration any modifications, such as payments made in cash or check, issuance of credit orders or similar documents, or redemptions in cash and in installments, detailing the monthly gross amount paid or credited to the account, accrued per calendar year, on a monthly basis;
  • The account balance as of the last working day of the year of every financial application;
  • The gross amount of yearly accrued income per financial application;
  • The balance of mathematical provisions of benefits to be granted, related to each supplementary retirement plan or to each individual insurance plan, as of the last working day of the year or as of the date of termination;
  • The balance as of the last working day of the year or as of the termination of each Pension Fund and of its corresponding modifications;
  • The amount of benefits or of secured capital, accumulated on a yearly basis, month by month;
  • Transfers between accounts of the same holder, between depository accounts in cash, or between savings accounts, or between depository accounts in cash and savings accounts;
  • The acquisition of foreign currency;
  • Exchange conversions of currencies to Brazilian reais;
  • Outbound transfers of currency and other amounts;
  • The total amount paid until the last day of the year, including the amounts of the bids that resulted in granting, less a deduction for the amounts of the credits made available to the quotaholder and the corresponding modifications, occurred during the year, segregated month by month, between credit and debit, per quota of the consortium;
  • Amount of credits made available to the quotaholder, accumulated annually, month by month, per quota of the consortium, during the year.

The information shall be sent to RFB every semester. The statutory deadline for remittance is the last working day of February (for the previous semester), and the last working day of August (for the first semester of the year). For facts occurred between December 1st and December 31, 2015, however, e-Financeira had to be filed up until the last working day of May 2016.

Practical Consequences of FATCA

Brazilian tax authorities announced that, in 2015, they received information about 25,000 accounts held by Brazilian residents in the US. Based on public statements of tax authorities' representatives, for the time being they are sorting the information and starting to prepare inspections.

Until October 31, 2016, Brazilian residents have the opportunity to voluntarily declare assets held abroad that were not reported to Brazilian tax authorites and to the Brazilian Central Bank, paying a total charge of 30% and being released of criminal consequences. Lack of declaration of assets is a tax evasion and another crime denominated "evasion of funds", and due to the voluntary disclosure program now in course, it is unlikely that the authorities start any inspection based on FATCA information during 2016.

However, from 2017 onwards, those holding undeclared accounts in the US may be subject to a tax assessment if they decided not to adhere to the amnesty, resulting in significant tax contingencies that may reach 84% of undeclared assets.

For further information on the application of the TIEA and the IGA between Brazil and the United States, as well as on joining the amnesty program referred to above, please contact our firm.


1 See WSJ (The Wall Street Journal). UBS Whistleblower Gets $104 Million. September 11, 2012.

2 For a definition of withholdable payments, see U.S. IRC § 1473(1)(A).

3 See Article 11 of Law 13,202/2015.

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.