The Netherlands Are Back Into The Brazilian List Of Privileged Fiscal Regimes

Executive Declaratory Act RFB 03/2015, published and effective as of December 23, 2015, has revoked the suspension of the Netherlands from the Brazilian list of Privileged Fiscal Regimes (informally known as the Brazilian graylist).

The suspension had been granted by Executive Declaratory Act RFB 10/2010, by virtue of a request made by the Government of the Netherlands, but it has been revoked now because the Government was unable to prove that the "content and effect of the applicable tax legislation justified a review of the [graylist] classification."

Given the publication of this new Executive Declaratory Act, the Dutch regime "applicable to legal entities incorporated as holding companies that do not perform substantial economic activities" is once more regarded as a Privileged Fiscal Regime. This classification is relevant for the following tax purposes in Brazil:

Deductibility of expenses incurred before Dutch companies in the graylist: Article 26 of Law 12,249/2010 establishes that the amounts paid, credited, delivered, used or remitted in any form, directly or indirectly, to persons that are beneficiaries of Privileged Fiscal Regimes are not deductible, unless the Brazilian taxpayer complies with three cumulative requirements. They are:

the identification of the effective beneficiary of the entity abroad, which will be the recipient of these amounts; the presentation of evidence that the individual or legal entity abroad is operational (in general and for the purposes of the transaction under review; and the presentation of evidence of the payment of the corresponding price and of the receipt of goods and services, or of the utilization of a service. It is important to highlight that the identification and presentation of evidence described in items (1) and (2) above may not be accepted by the Federal Revenue Secretariat of Brazil ("RFB") if the only or main purpose of placing this person in the transaction is to reduce the applicable tax burden of the transaction.

Transfer Pricing: Exports and imports of goods and services, as well as financial operations between Brazilian legal entities and graylisted Dutch entities are once more subject to transfer pricing rules, even if the relevant Dutch entity is not a related party in the parlance of Article 23 of Law 9,430/1996.

Thin Capitalization: Brazilian legal entities that incur debt obligations before graylisted Dutch entities may deduct corresponding interest for purposes of the...