Brazil And BEPS Action 12

In line with BEPS Action 12, the Brazilian President enacted, on July 21, 2015, the Provisional Measure (“MP”) no. 685, creating the obligation for taxpayers to disclose aggressive tax plannings. Even though this MP is enforceable immediately, the actual disclosure still depends on regulations to be issued in the near future. In addition, a MP is a temporary law that is submitted to the Brazilian Congress, who can, within 120 days, either (a) approve; (b) reject; (c) approve with changes; or (d) do nothing. If the Congress does not approve within 120 days, the MP expires and ceases its effects.

MP 685/2015 establishes that taxpayers are obliged to declare to Brazilian tax authorities, until the end of September of each year, the transactions performed in the previous calendar year that involve elimination, reduction or deferral of tax.

This declaration must be filed when (a) the performed transactions do not have significant reasons other than tax; (b) the adopted form is not usual for the intended deal, or when the contract contains clause that result in effects different from a typical contract; or (c) the specific transactions performed by the taxpayer are those included in the list to be enacted by Federal Revenue Secretariat (“RFB”). When this declaration contains facts or transactions not yet occurred, it will be treated as a request for a ruling (formal consultation).

RFB may either agree or disagree with the transactions practiced by the taxpayer and, when there is a disagreement, the taxpayer will be notified to pay (or request to pay in installments) the taxes due with arrears interest within 30 days. No penalty will apply provided that this 30-day period is complied with. This exemption of penalty does not apply when the taxpayer presents the declaration after RFB started a tax inspection.

The lack of declaration or the incomplete or incorrect declaration will characterize omission to hide a tax evasion and RFB will charge taxes due with penalty (150%) and interest.

There is no question that this declaration is in line with BEPS. Upon the enactment of the MP, the Government explained that the disclosure of tax planning strategies intends to increase legal security for businesses and avoid long and unnecessary disputes, and also to follow BEPS recommendation. The Government also points out that the existence of disclosure obligation stimulates a more conservative approach by taxpayers when dealing with tax plannings.

However, the...