Brazilian special regime for monetary and tax regulation and international tax cooperation

Brazil has a special and temporary regime for monetary and tax regulation in order to regularize unreported foreign assets held by individuals and legal entities resident or domiciled in Brazil. Such regime – called RERCT in Portuguese – was created by Federal Law No. 13,254/2016 and detailed by the Normative Ruling No. 1,627/2016 from the Federal Revenue Office. Following the global trend, this regime allows the taxpayers to disclose unreported assets to the Brazilian Federal Revenue Office, complying with the Brazilian tax law. The report shall be based on the foreign assets held on December 31, 2014.

Among the benefits of the regime, we highlight the reduced payment by the disclosing taxpayer: (i) income tax at a rate of 15% (fifteen per cent) of the total amount of the reported assets (as capital gain); and (ii) fine of 100% (one hundred per cent) of the referred income tax paid due to this disclosure. After submission of the declaration and payment of the proper amounts, the taxpayer will benefit from amnesty for crimes of fiscal fraud, tax evasion, fraudulent misrepresentation, unauthorized exchange operation, social security contribution evasion and document fraud.

Only individuals or legal entities resident or domiciled in Brazil in December 31, 2014 may join RERCT. This taxpayer cannot hold public management or elective positions and or be convicted for any crime listed in paragraph 1 of Article 5 of Federal Law No. 13,254/2016.

The RERCT reflects a global concern. The Convention on the mutual administrative assistance in tax matters (Convention), developed jointly by the Organisation for Economic Cooperation and Development (OECD) and the Council of Europe in 1988 and amended by Protocol in 2010, was signed by Brazil during a summit meeting of the G-20 in 2011 and will be in force on October 1st, 2016. Signed by over 90 countries, the Convention provides for international administrative assistance in the fight against tax evasion and tax fraud. Among the provisions of the multilateral instrument are included: (i) exchanging information including simultaneous tax examinations and participation in tax audits abroad; (ii) collecting tax claims including protective measures; and (iii) documents notification.

The Convention sets forth that the countries can undertake any precautionary measures for the collection of tax credits of the signatory states and, according to article 11, the states can also undertake the collection of tax credit at request of the applicant state.

Furthermore, Brazilian Federal Revenue Office will have access to financial and tax information from the Convention signatory countries according to the automatic data exchange models. Among them stands out the standard for automatic exchange of financial account information in tax matters, which will allow the Brazilian Federal Revenue Office to receive financial data from all the signatory countries including those considered tax heavens; and country by country.

We highlight that the individuals or legal entities resident in Brazil are subject to pay income tax to the Brazilian Federal Revenue Office on their worldwide income (i.e., including the income received outside Brazil), according to Brazilian tax law. The deadline to join the RERCT is October 31, 2016.

The lawyers of Bastilho Coelho Advogados are available for more information.

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