By Alex Jorge, tax partner, and Marcelo Siqueira, senior tax associate, of Campos Mello Advogados in Brazil (in cooperation with DLA Piper)

On November 7, 2016, the Brazilian Federal Revenue (“RFB”) released the draft of a proposed Normative Rule (Public Consultation RFB No. 11/2016 – click here) regulating the implementation of Country-by-Country Report (“CbC Report”) in accordance with BEPS[1] Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting (“Proposed Draft”).

RFB indicated that CbC Report is an important instrument to gather information from multinational groups (“MNG”)[2] in order to proceed with the analysis and identification of tax risks related to international taxation and as a statistical data-base, enabling the RFB to assess abusive structures.

The Proposed Draft requires the following entities in Brazil to provide such information:

 

  1. The final controlling party[3] of a multinational group (“MNG”) which is tax resident in Brazil; or
  2. The surrogated legal entity in Brazil of a MNG, in case the final controlling party is a tax resident abroad and if at least one of the following requirements are met:
    1. The final foreign controlling party tax domiciled abroad is not required to file the CbC Report in its jurisdiction
    2. The jurisdiction of the final foreign controlling party tax domiciled abroad has an international treaty[4] with Brazil, but do not have a specific treaty with Brazil regarding the CbC Report[5] by the filing due date of the CbC Report in Brazil; or
    3. A systemic failure[6] occurred in the jurisdiction of the foreign controlling party.
  3. Even if a legal entity in Brazil of the MNG is not covered by item “b” herein above, such Brazilian legal entity may be required to file the CbC Report if[7]:
    1. Its MNG did not indicate the surrogated legal entity; or
    2. A systemic failure occurred in the jurisdiction of the surrogated legal entity.

Any legal entity in Brazil of a MNG shall disclose to RFB:

  1. If it is the final controlling party tax domiciled in Brazil of a MNG;
  2. If it is the surrogated legal entity tax domiciled in Brazil of a MNG; or
  3.  If the previous items are not applicable to the legal entity in Brazil, the reporting legal entity and its jurisdiction, which may be:
    1. Another Brazilian legal entity of the MNG; or
    2. A foreign legal entity of the MNG if its jurisdiction (i) requires the CbC Report, (ii) has a treaty with Brazil, (iii) was not notified for systemic failure, and (iv) was notified by such legal entity (as the controlling or substitutive party).

The following Brazilian legal entities which are part of a MNG are not required to file a CbC Report when:

  1. The MNG’s total consolidated revenue be less than R$2,260 billion, if the final controlling party is a tax resident in Brazil; or
  2. The MNG’s total consolidated revenue be less than €750 million or equivalent to the jurisdiction local currency (converted to Brazilian Real on January 31, 2015), if the final controlling party is a foreign legal entity.

The first CbC Report refers to calendar year 2016 and shall be filed via ECF (Tax Accounting Bookkeeping/Income Tax Returns) using SPED (Public System of Digital Bookkeeping) during 2017..

The CbC Report requires MNG to disclose the following information:

  1. In an aggregate manner per jurisdiction where the MNG operates:
    1. Total revenue and the revenue received from related and non-related parties;
    2. Profit or loss before income tax;
    3. Income tax paid;
    4. Income tax due;
    5. Capital stock;
    6. Accumulated profits;
    7. Number of employees; and
    8. Tangibles assets other than cash and cash equivalent.
  2. Identification of each legal entity of the MNG, by informing:
    1. Its residence jurisdiction for tax purposes and, if different from that, the jurisdiction according to the laws the legal entity is established; and
    2. The nature of its main economic activities.
  3. Any other information provided voluntarily by reporting entity.

All documents regarding the information provided at the CbC Report shall be kept by the legal entities and do not need to forward to RFB.

The following penalties are due in case of:

  1. Late filing penalty: R$ 500.00 (newly incorporated or deemed profit system) or R$ 1,500.00 (other type of tax regimes, including actual profit system);
  2. Lack of filing or non-presentation of documentation requested by RFB: R$ 500.0 per month;
  3. Omission or wrong information provided: 3% of the value of the commercial or financial transaction of such omitted or incorrect information (not less than R$ 100.00).

Taxpayers can provide comments or suggestions to the Proposed Draft between November 07, 2016 and November 21, 2016.

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For more information please contact the authors:

Alex Jorge, tax partner, and Marcelo Siqueira, senior tax associate, of Campos Mello Advogados in Brazil (in cooperation with DLA Piper)

 

Footnotes

[1] Acronym for Base Erosion and Profit Shifting.

[2] Defined in the draft as two or more legal entities through direct or indirect control or one legal entity with permanent establishment in other jurisdiction.

[3] Defined in the draft as an equity holder.

[4] Defined in the draft as a treaty where Brazil is one of the signatories and which authorizes the exchange of tax information, including automatic exchange. Such treaty may be the OECD Convention on Mutual Administrative Assistance in Tax Matters, Tax Treaties with an exchange of tax information provision or a treaty to exchange tax information.

[5] Defined in the draft as a treaty regarding the automatic exchange of CbC Report.

[6] Defined in the draft as when the jurisdiction suspends the automatic exchange of information or fails to provide the CbC Report to Brazil.

[7] If there is more than one, they will have to indicate the one responsible for the CbC Report.