Recent developments in tax, 2015

Annual International Bar Association Conference 2015
BRAZIL: Recent Developments in Tax Matters
Andrea Bazzo Lauletta
Mattos Filho Advogados
[email protected]
SÃO PAULO
BRASÍLIA
RIO DE JANEIRO
NEW YORK
Al Joaquim Eugênio de Lima 447
01403 001 São Paulo SP Brasil
T +55 11 3147 7600
SHS Q6 Bloco C Cj A sala 1901
70322 915 Brasília DF Brasil
T +55 61 3218 6000
Praia do Flamengo 200 11º andar
22210 901 Rio de Janeiro RJ Brasil
T +55 21 3231 8200
712 Fifth Avenue 26th Floor
New York NY 10019 USA
T +1 646 695 1100
www.mattosfilho.com.br
1.
IFRS – Conflict with Domestic Tax Law
Law No. 12,973/14 terminated the dual accounting system in place in Brazil since 2008, whereas
Brazilian entities were obliged to adopt accounting standards aligned with the International
Financial Reporting Standards (IFRS) for corporate purposes and old rules of BR GAAP for
corporate taxation.
As of the entry into force of Law No. 12,973/14 now in 2015, Brazilian entities are required to
use IFRS also for corporate taxation, except when such law itself or supervening laws provide
for specific adjustments to for tax purposes.
As Brazilian law practitioners get used to having the IFRS-based financial statements as the
starting point for corporate taxation, it has become clearer that in many situations IFRS rules
may conflict with certain Brazilian tax principles.
While IFRS rules prioritize a substance over form analysis and admit fair value approach for
many assets rights and liabilities, the tax system is driven by legality and realization principles,
which in most cases seek to avoid, or at least should avoid, taxation of estimated and unrealized
income. Thus, it has become a general consensus that certain IFRS rules, if not adjusted by Law
No. 12,973/14 or subsequent law, are contradictory to certain key tax concepts.
Hence, it seems that law and accounting practitioners in Brazil will have to constantly tackle this
issue, it would be interesting to compare how other countries manage similar situations.
2.
New Rules for Share-based Payments
Among the modifications introduced by Law No. 12,973/14, which just changed significantly the
corporate taxation in Brazil, one concerns the tax regime applicable to share-based payments.
Mostly inspired by CPC 10 (Brazil’s equivalent to IFRS 2), the law qualifies such payments as
SÃO PAULO
BRASÍLIA
RIO DE JANEIRO
NEW YORK
Al Joaquim Eugênio de Lima 447
01403 001 São Paulo SP Brasil
T +55 11 3147 7600
SHS Q6 Bloco C Cj A sala 1901
70322 915 Brasília DF Brasil
T +55 61 3218 6000
Praia do Flamengo 200 11º andar
22210 901 Rio de Janeiro RJ Brasil
T +55 21 3231 8200
712 Fifth Avenue 26th Floor
New York NY 10019 USA
T +1 646 695 1100
www.mattosfilho.com.br
SP - 13879927v1
compensation paid in exchange for services rendered by employees or similar other parties
which must be recognized by the granting entity (of shares, shares options, or share
appreciation rights) in its financial statements.
As a consequence of such accounting recognition, the referred new tax law granted the right to
deduct the compensation amounts related to the fair value of the securities granted to the
employees. As in this context the share-based payments were treated as compensation, some
questions may arise if such amounts should as well trigger social security taxes impacts and
individual income tax.
Accordingly, as the law is silent in this respect, it would be interesting to discuss the approach
taken in different jurisdictions in order to compare the different tax treatment applicable to
share-based payments and how much such treatment is linked to the accounting procedures.
3.
New CFC Rules & Signing of TIEA
Law No. 12,973 introduced significant changes to Brazil’s controlled foreign corporation (CFC)
rules for income derived abroad by controlled and affiliate entities of Brazilian resident entities.
Brazilian CFC rules largely depart from other CFC regimes used in many countries to prevent
erosion of the domestic tax base for the conditions to its application are not restricted to CFC
located in a low tax jurisdiction; or to CFC that derive specific types of passive income. Rather,
Brazilian CFC rules generally apply indiscriminately, seeking to tax, at the end of each year, the
profits recorded by the Brazilian controlling company in connection with its controlled entities
outside Brazil.
The current CFC rules provide that the Brazilian entity should include in its taxable basis the
result derived from its direct and indirect controlled foreign corporations, i.e., not with reference
to the consolidated result at the level of the directed invested companies, but rather on a
SÃO PAULO
BRASÍLIA
RIO DE JANEIRO
NEW YORK
Al Joaquim Eugênio de Lima 447
01403 001 São Paulo SP Brasil
T +55 11 3147 7600
SHS Q6 Bloco C Cj A sala 1901
70322 915 Brasília DF Brasil
T +55 61 3218 6000
Praia do Flamengo 200 11º andar
22210 901 Rio de Janeiro RJ Brasil
T +55 21 3231 8200
712 Fifth Avenue 26th Floor
New York NY 10019 USA
T +1 646 695 1100
www.mattosfilho.com.br
SP - 13879927v1
standalone basis. At the same time, the CFC rules allow Brazilian entities to consolidate the
results provide certain requirements are met. One of these requirements is that Brazil has
entered into a tax information exchange agreement (TIEA), or a double tax convention (DTC)
containing a similar provision with the country where the indirect entity is located.
Accordingly, we believe that the signing of TIEA between Brazil and other countries will increase
in importance given the relatively small Brazil’s DTC network. We note that Brazil has finally
approved the TIEA signed with the United States in March 2007 (whereas negotiations on the
DTC are still ongoing, after several years).
We believe it would be interesting to discuss the increasing importance of TIEA, and the
respective interaction with domestic law of other countries (for instance, for purposes of
granting certain more beneficial regimes, as in the case of Brazilian CFC rules).
4.
Taxation of E-commerce Transactions
Brazil has enacted a new legislation to change the rules on taxation on e-commerce (Brazilian
ICMS - VAT). Such legislation came into effect on April 17, 2015.
Under the new legislation the VAT taxation of intra-State e-commerce transactions will be split
between the State in which the consumer is resident and the State in which the supplier is
established. This means that, rather than applying a single VAT rate in its State of establishment
(origin-based VAT), the VAT will be split in between supplier and consumer States at the
following proportions:
a) 20% for consumer’s State and 80% for supplier’s State, during 2015;
b) 40% for consumer’s State and 60% for supplier’s State, during 2016;
c) 60% for consumer’s State and 40% for supplier’s State, during 2017;
d) 80% for consumer’s State and 20% for supplier’s State, during 2018;
SÃO PAULO
BRASÍLIA
RIO DE JANEIRO
NEW YORK
Al Joaquim Eugênio de Lima 447
01403 001 São Paulo SP Brasil
T +55 11 3147 7600
SHS Q6 Bloco C Cj A sala 1901
70322 915 Brasília DF Brasil
T +55 61 3218 6000
Praia do Flamengo 200 11º andar
22210 901 Rio de Janeiro RJ Brasil
T +55 21 3231 8200
712 Fifth Avenue 26th Floor
New York NY 10019 USA
T +1 646 695 1100
www.mattosfilho.com.br
SP - 13879927v1
e) 100% for consumer’s State, as of 2019.
As a consumption tax, most countries elect to make the location of the consumer the place of
VAT taxation. Accordingly, when a shopper buys online from an e-retailer located in country or
State other than his (origin), he is supposed to be charged its respective country (or State) VAT
(destination).
The recently enacted law seems to be a move more aligned with the OECD VAT Guidelines, and
practice in the rest of the world, which favors taxation at the supplier’s State (or country, as the
case may be), rather than taxation at the origin’s State (or country). It would be interest to
compare the scenarios in some countries.
SÃO PAULO
BRASÍLIA
RIO DE JANEIRO
NEW YORK
Al Joaquim Eugênio de Lima 447
01403 001 São Paulo SP Brasil
T +55 11 3147 7600
SHS Q6 Bloco C Cj A sala 1901
70322 915 Brasília DF Brasil
T +55 61 3218 6000
Praia do Flamengo 200 11º andar
22210 901 Rio de Janeiro RJ Brasil
T +55 21 3231 8200
712 Fifth Avenue 26th Floor
New York NY 10019 USA
T +1 646 695 1100
www.mattosfilho.com.br
SP - 13879927v1