Changes To The CFEM, The Brazilian Mining Royalty

Mining

On December 19, law No. 13,540/2017 was enacted. It was originated from executive order No. 789/2017 and its subsequent bill of law No. 38/2017. The new law changes several rules regarding the collection of the Financial Compensation for Mineral Exploitation (Compensação Financeira pela Exploração de Recursos Minerais - CFEM), known as the Brazilian mining royalty.

After the discussion in Congress, the final report modified some aspects of the executive order sponsored by the Federal Government, essentially regarding CFEM tax basis and rates.

Tax basis

Before the issuance of the mentioned executive order, the CFEM tax basis was the mineral products net sales, excluding taxes over the selling as well as transportation and insurance costs. Now, the tax basis will consider the gross revenue, excluding only taxes over the selling. If the mineral product is consumed by the company, from 2018 on, the CFEM may levy on the calculated gross revenue considering the products (or similar products) current prices in local, regional, national or international markets, according to each case. Alternatively, CFEM may levy on the reference price of the product obtained upon the processing of the minerals, according to the Brazilian mining authority's discretion.

The Brazilian National Mining Agency (Agência Nacional de Mineração - ANM), that supervenes the National Department of Mineral Production (Departamento Nacional de Produção Mineral - DNPM), will establish the criteria when the miner consumes the mineral product, indicating the market price or the reference price. For the latter, the ANM must observe parameters set forth in a decree (not yet enacted), in order to apply higher reference prices for mineral deposits with higher grades.

For mineral water, CFEM will levy on gross revenues, excluding taxes over the selling, paid or offset, according to the tax regime adopted.

Rates

The CFEM rates suffered major changes. Rocks, sands, gravel, clay and other mineral products used directly in civil construction (also called construction aggregates), ornamental rocks, as well as mineral and thermal water are now levied on a 1% rate. Gold has now a 1.5% rate. Diamonds and other mineral products, on their turn, are now levied on a 2% rate, while bauxite, manganese, niobium and rock salt have a 3% rate.

The Government intended to create progressive rates for the iron ore, according to its international price. However, the report was modified in the House...