The Development Of The Definition Of Tax Haven In Brazil

Like many other developed countries, from time to time the Brazilian government refines and adjusts the legal definition of tax haven jurisdiction (paraíso fiscal)1, initially established by Law No. 9.430, of December 27, 1996, which introduced the transfer pricing regulations in Brazil. These changes aims to gradually reduce and close almost all the tax planning structures and alternatives envisaged by creative business lawyers based on offshore vehicles. The latest change was recently made by Law No. 11.941, of May 27, 2009 and is commented herein.

To better understand the consequences of this constant evolution, it is essential to list the various rules governing this subject in their chronological order:

article 14 of Law 9.430/96 defined for the first time the concept of tax haven or fiscal paradise using the expression "favored taxation country" (pais com tributação favorecida), comprising any country that does not impose tax on income or, when imposes, it is a low-tax country, in which the applicable income tax rate is equivalent to any percentage varying between zero and 20% (maximum); article 8 of Law No. 9.779, of January 19, 1999, increased the withholding income tax rate due by non-residents domiciled in tax haven countries from 15% (the basic rate) to 25%. This taxation applies to remittances or payments of interest, royalties or service fees but not on dividends (which are not taxable in Brazil); Law No. 9.959, of January 27, 2000, created an adverse tax regime discriminating investments originated from tax haven countries; Law No. 10.451, of May 10, 2002, added a new paragraph (§ 3) to article 24 of Law 9.430/96, classifying separately the taxation of work (labor) and capital (investment), as well as dependencies of the country of residence or domicile. Furthermore, article 4 of Law 10.451/02 sets forth that the transfer pricing regulations of Law 9.430/96 regarding prices, costs and interest rates also apply to transactions made by any individual or legal entity resident or domiciled in Brazil with any individual or legal entity, related or not, resident or domiciled in a country or dependency whose national legislation allows secrecy about the capital stock structure or ownership of the companies organized under the laws of such jurisdiction, i.e. requires confidentiality on who are the ultimate beneficiary holders of the legal entity and consequently does not permit the disclosure of the names of the partners or...