The Brazilian IRS amended the list of “tax heavens”
Beatriz Kikuti Ramalho, of Alliott Group's Brazilian law firm member firm Rayes, Fagundes & Oliveira Ramos Advogados Associados, explains how the Brazilian IRS has recently updated the list of countries with favored taxation, practice known as "tax havens", through the Normative Instruction (IN) 1037, which was not changed since 2002.
Countries that made the list have tax income rates below 20% and do not allow access to information regarding corporate structure, ownership of property or rights or the economic transactions carried out by companies.
With this update, 14 new nations were included in the list of “tax havens,” among them Brunei, French Polynesia and the Islands of St. Helena. Switzerland was initially included in the list, but this country is negotiating with the Brazilian authorities to reconsider its classification.
Transactions with these countries are under special scrutiny by the IRS, which is reflected, for example, by a high taxation (25%) on remittances of interest from Brazil, instead of the 15% due on remittances made to residents and entities domiciled in non tax haven jurisdictions.
Transfer pricing rules also apply to transactions between companies domiciled in these countries. Brazilian government intends to punish overpriced sales transactions between related parties, in which most of the profit of holding companies ends up in the country that has lower taxation rates.
Additionally, the IN introduced a list of entities that are classified as beneficiaries of tax privileged regimes. These structures are no considered “tax havens,” but their jurisdictions ultimately offer legal and tax benefits to attract investments.
Examples of entities that are indicated by the IRS as beneficiaries of tax privileged regimes are, among others, any form of Holding Companies domiciled in Luxemburg, Sociedades Financeiras de Inversão (SAFIS) of Uruguay, and the Limited Liability Companies (LLCs) of the United States that are held by non-residents and are not subject to federal income tax in the US.
Article Date: 1st September 2010
Added by: James Hickey
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