FATCA, CRS And Brazil: Where Are We And Where Are We Going?

The automatic exchange of financial information is a world reality. By the end of September the third round of exchange among several countries and the Unites States, under the Foreign Account Tax Compliance Act (FATCA), shall be completed and the early adopters of the Common Reporting Standard (CRS), designed and overseen by the Organization for Economic Cooperation and Development (OECD), shall start their mutual exchanges.

History

Although the exchange of tax information is historically provided for in double taxation conventions and in specific tax information exchange agreements, it was usually restricted to the exchange by request. Even in cases where the automatic exchange was provided for, the absence of rules and procedural standards prevented its applicability. There was the will, but not the means to establish what we may call the "Global Revenue Service".

Everything changed at the beginning of this decade due to the Hiring Incentives to Restore Employment Act (Hire), signed on March 18, 2010, by the former President of the United States of America, Barack Obama. Among the measures envisaged in the Hire Act, special attention was given to FATCA, a regime that imposed to financial institutions and entities alike located outside the US (Foreign Financial Institutions – FFI) the duty to provide information to the Internal Revenue Service (IRS) about assets and financial accounts owned or controlled directly or indirectly by American citizens and residents. Failing to do so would require American paying sources to withhold income tax at a 30% rate over any payments made to the non-compliant FFIs.

In order to make FATCA possible and to avoid violating other countries' sovereignty the US signed several Intergovernmental Agreements (IGAs). Brazil and the US had already signed a bilateral Tax Information Exchange Agreement (TIEA) in 2007 – internally approved by Decree No. 8,003 of March 15, 2013. On September 23, 2014, both countries signed the IGA, which regulates the automatic exchange of information under FATCA, approved in Brazil by Decree No. 8,506 of August 24, 20151. Since then, Brazil has exchanged tax information with the USA automatically2.

In parallel with FATCA, in 2011 Brazil signed the OECD's Convention on Mutual Administrative Assistance in Tax Matters, which was internally approved on August 29, 2016 (Decree No. 8,842). Subsequently, on October 21, 2016, Brazil also signed the Multilateral Competent Authority Agreement...