Brazilian IRS Defines The Concept Of Substantial Economic Activity And Amends The List Of Privileged Tax Regimes And Low Tax Jurisdictions - Inclusion Of Austria And Ireland

The Brazilian Revenue Department published, on September 14, 2016, Normative Instruction No. 1,658 ( "IN 1,658 / 16"). IN 1,658/16 changes the wording of IN 1,037/10, which lists jurisdictions considered by the Brazilian tax authorities as low tax jurisdictions and privileged tax regimes.

IN 1,037/10 already provided that holding companies domiciled in the Netherlands and Denmark would be considered privileged tax regimes when they do not have substantial economic activity.

IN 1,658/16 clarifies that for the identification of these privileged regimes, the holding will be considered to perform a substantial economic activity when it has, in the country where is domiciled, appropriate operational capacity to carry out its corporate purpose, which is evidenced, among other factors, by the existence of skilled employees in sufficient number and adequate facilities for the exercise of management and effective decision-making related to: (i) the development of activities in order to earn income derived from the assets held by the holding; or (ii) the administration of equity interest held in other entities in order to earn income arising from the distribution of profits and capital gains.

Another amendment introduced by IN 1,658/16 is the inclusion of holding companies domiciled in Austria in the list of privileged tax regimes.

Different from what occurs with the Danish and Dutch holding companies, we emphasize that with respect to the Austrian holding companies, the classification as a privileged tax regime is not impacted by the performance of substantial economic activity.

In other words, according to the current wording of IN 1,037/10, as amended by IN 1,658/16, in...