Corporate Tax 2010 - BMR Advisors

Pinheiro Neto Advogados
Brazil
5.3 Is there a participation exemption
There is no participation exemption in Brazil.
5.4 Is there any special relief for reinvestment
The reinvestment is considered a payment of dividend followed by
a correspondent inflow of proceeds in Brazil. The only benefit in
this case is that, for foreign investors, the two foreign exchange
transactions (outflow of money for the dividend payment and
inflow of money for the capitalisation of the company) are exempt
from the IOF due on foreign exchange transactions.
6 Branch or Subsidiary
6.1 What taxes (e.g. capital duty) would be imposed upon the
formation of a subsidiary
The mere formation of a subsidiary is not actually tax triggering
event in Brazil. However, if the company is formed with foreign
capital, the foreign exchange transaction of the money inflow will
be taxed by the IOF on foreign exchange transactions at the rate of
0.38%. On the other hand, if part of the capital of the subsidiary
enters Brazil in the form of a foreign loan, the IOF in the foreign
exchange transaction, in this case, is zero.
6.2 Are there any other significant taxes or fees that would be
incurred by a locally formed subsidiary but not by a
branch of a non-resident company
No. Brazilian branches have the same tax regime applied to
Brazilian subsidiaries.
6.3 How would the taxable profits of a local branch be
determined
Following the same rules applicable to Brazilian companies.
6.4 Would such a branch be subject to a branch profits tax (or
other tax limited to branches of non-resident companies)
6.5 Would a branch benefit from tax treaty provisions, or some
of them
The branch, being permanently established in Brazil, is treated like
a distinct and separate company with absolute independence from
its headquarters. Therefore, any disposition of a treaty applicable in
the relation between two unrelated companies will also be
applicable to the Brazilian branches of foreign companies.
6.6 Would any withholding tax or other tax be imposed as the
result of a remittance of profits by the branch
No, except for regular IOF on foreign exchange transactions at the
rate of 0.38%.
7 Anti-avoidance
7.1 How does Brazil address the issue of preventing tax
avoidance For example, is there a general anti-avoidance
rule or a disclosure rule imposing a requirement to
disclose avoidance schemes in advance of the company’s
tax return being submitted
To prevent tax avoidance, Brazil has tried to apply the substanceover-form
approach when auditing Brazilian companies, using the
concept of simulation. In order to evaluate a taxpayer’s acts or
business and determine whether they should be disregarded, the tax
administration is using the following criteria: (i) lack of business
purposes; and (b) an abuse of form.
The lack of a business purpose would occur if the taxpayer had
adopted, in a certain act or business, for a more complex or
burdensome mechanism from among those legally available to him.
The abuse of legal form would mean the performance of an indirect
act or business that had the same economic outcome as the
simulated act or business.
It is worth to note, however, that the concepts of substance over
form and the need of business purpose to justify the taxpayers’
transactions are not foreseen in the Brazilian tax law. On the
contrary, such concepts are derived from the current case law where
transactions that present a corroborating business purpose have
been judged in a favourable manner to the taxpayers.
Brazil
There is no special branch tax regimen in Brazil. Therefore, the
foreign companies that form branches in Brazil will have their
branches subject to the same tax treatment of any other Brazilian
company.
ICLG TO: CORPORATE TAX 2010
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