Brazilian Tax Review – October 2018

Important New Private Letter Ruling on Transfer Pricing

The Federal Revenue Office issued the Private Letter Ruling 95/2018, which has analyzed the transfer pricing calculation through the Resale Price Method by a company that imports steel bars and cut them into pieces for the resale in the domestic market.

The tax authorities held that this activity is not characterized as "siderurgy", but as "manufacturing in general", in a way that the company is eligible to use a lower fixed margin for transfer pricing purposes, which is more advantageous for the taxpayer.

Important to note that this Private Letter Ruling might be applicable to other industries and reduce other TP margins, depending on a case-by-case analysis.

Tax Authorities Revise its Understanding on the Taxation of Admitted Reinsurers' Business in Brazil

The Federal Revenue Office issued the Private Letter Ruling 91/2018, which, among other aspects, has revised its understanding on the taxation of the admitted reinsurer's business in Brazil.

According to the tax authorities, if the admitted reinsurer's representative in Brazil habitually exercises the full authority to conclude contracts on its behalf, the profits earned by the non-resident must be levied by the domestic taxation.

On the other hand, if the representative only provides auxiliary activities to the admitted reinsurer, such as relationship with regulatory bodies or technical and commercial assistance, there would be no attribution of a permanent establishment in Brazil. Thus, only the source taxation would be levied.

This is a change to the Federal Revenue Office's interpretation. Previously, the Private Letter Rulings 62/2017 had assumed that the admitted reinsurer's representative always exercises the authority to conclude contracts on its behalf, in a way that the profits earned by the non-resident would be subject to the domestic taxation in any occasion. However, according to the new ruling, such qualification demands a case-by-case analysis.

Brazil-USA Social Security Agreement is Effective as of October 1st, 2018

Brazil has signed a social security agreement with the United States of America, which became effective as of October 1st, 2018.

This agreement gives each country's workers who are resident in the territory of the other country the opportunity to take advantage of the contribution periods in the two countries to obtain the social security benefit.

Important New Definition of "Service Export" for PIS and...