Base erosion and profit shifting (BEPS)
Since June 2014, the RFB has closely followed the discussions of the G20/OECD BEPS project and adopted a series of measures in relation to the minimum standards proposed by the BEPS Action Plans. As a result of the formal request from Brazil to join the OECD as a full member in 2017, additional developments in relation to other OECD BEPS initiatives have been implemented.
Multilateral Convention on Mutual Administrative Assistance (MCAA)
Although not strictly developed under the BEPS project, the MCAA, signed by Brazil and in force since October 2016, provides a platform for automatic and on-demand exchange of information between tax authorities of different jurisdictions.
Under the umbrella of the MCAA, Brazil has signed two Multilateral Competent Authority Agreements, which will allow tax authorities to automatically exchange financial information (CRS MCAA) and country-by-country reportings (CbC MCAA).
Common reporting standards (CRS)
On 29 December 2016, the RFB issued the final regulations in relation to the implementation of the CRS in Brazil. The regulations define the relevant information that should be exchanged, including information on financial assets, as well as the specific procedures that should be followed by the financial institutions that will present the report starting in 2018.
Country-by-country (CbC) reporting
On 29 December 2016, the RFB issued the final regulations in relation to the implementation of the CbC reporting, establishing the framework under which multinational enterprises (MNEs) are required to disclose information in Brazil related to their economic activities worldwide. The information has been disclosed on the Corporate Income Tax Return (ECF) since 2017.
Mutual Agreement Procedure (MAP)
RFB issued Normative Instruction 1669/2016 laying out the rules to allow taxpayers to access the MAP. Although Brazil had included Article 25 of the OECD Model Convention (related to MAP provision) in its Double Tax Treaties, before NI 1669/2016 there were no specific procedures to access this resource. On 28 November 2018, NI 1669/2016 was revoked by NI 1846/2018, which added a few additional clarifications for the MAP.
In December 2018, a manual for the MAP was published by the tax authorities, further illustrating the processes to be followed in order to make use of the MAP.
Multilateral Convention to implement tax treaty related measures to prevent BEPS (MLI)
Brazil has not signed the MLI, but has started to include the minimum anti-abusive standards in its newly negotiated treaties.
Exchange of information of Brazilian Rulings
Normative Instruction 1689/2017 introduces the compulsorily exchange of information on tax rulings rule, which according to the RFB should include 'solução de consulta', 'solução de divergência', and 'ato declaratório interpretativo'. The exchange of information should be restricted to transfer pricing, PE, or the PADIS tax benefit.
Brazilian pension reform bill in 2019
Brazil has a historical public debt issue related to the public pension regime, which has begun to be reformed for upcoming years. After considerable discussion during past years, a reform was approved in 2019.
The reform has established certain measures to reduce the current social security deficit, such as raising the minimum retirement age and reducing or restructuring some of the benefits currently available to workers, both from private companies as well as civil workers.
It should be noted that a transition regime is currently in force, designed to capture the situation of the workers and employees who had already started to contribute to the public pension regime but had not yet officially retired.
Ongoing Brazilian tax reform proposals
Brazil is the home to an increasingly complex and overly bureaucratic tax system, with several different ancillary obligations and different types of taxes, which have traditionally led to a significant cost for tax compliance that is not mirrored in other jurisdictions.
As a result, a tax reform has always been discussed, but it was not until 2019 and with a new presidential term starting that such discussions got more tangible. Current proposals include suggestions for both direct and indirect taxes in all federative levels, with the main drivers being the reduction of the corporate income tax (CIT) in exchange for dividend taxation at source, while for indirect taxes the simplification and/or combination of several taxes is the focus.
Although there are different proposals currently under discussion, there is one in particular about the VAT/Excise Tax Reform, that proposes the replacement of all indirect taxes for a dual federal/state system, plus an excise tax, that is more advanced and is expected to be approved and enacted yet in 2023. The discussion is being held at the constitutional level since the VAT Reform would require effective amendments to the Brazilian Federal Constitution in order to be enacted. This constitutional amendment is the fundamental pillar of the
broad tax reform which also requires a Law Complementary to the Constitution (LC), to be proposed in 2024 for likely enactment by 2025.
On the other hand, measures such as reduction of the CIT rate and reintroduction of WHT for dividends can be achieved through a simpler legislative process; however, the current environment is still heavily driven by uncertainty on the outcome of such proposals, and it is currently very difficult to determine and/or predict the expected timing and impacts.