Brazil: Key Tax and Regulatory Changes Announced

| Photo: Rio de Janeiro City Skyline during Night Time by Natã Romualdo

DRAFT APA (ADVANCE PRICING AGREEMENT) REGULATIONS OUT FOR PUBLIC CONSULTATION

• Overly Restrictive Regulations: The program is limited to taxpayers enrolled in cooperative compliance programs.

• Limited Annual Quota: Only a certain number of APA requests are accepted per year, raising concerns over capacity and inclusivity.

• Need for Refinement: The draft mixes APA and ICAP (International Compliance Assurance Programme) concepts. Better to have a managed queue system rather than limit access.

DRAFT SERVICE REGULATIONS

• Benefit Test Alignment: Generally consistent with the arm’s length principle (ALP).

• Asset Use Transactions: These are categorized as services. Further analysis is expected.

CORPORATE TAX RATE INCREASE PROPOSALS

• General CSLL (Social Contribution on Net Profit) Rate: Temporarily increased from 9% to 10%, raising the general corporate tax rate from 34% to 35%.

• Financial Sector (FS) CSLL Rate: Increased to 22%, raising the corporate tax rate for financial institutions to 47%.

• Temporary Measure for CY2025: This rate hike reignites discussions on reintroducing a dividend withholding tax (WHT). Ideally, this would lead to a corporate tax rate decrease, but current government efforts focus on balancing the 2025 Proposed Budget (PLOA).

EXPANSION OF SETTLEMENT PROGRAMS FOR TAX LITIGATION

• Focus on Key Transactions: Including Transfer Pricing, Non-Resident Capital Gains Tax, and other issues significant for multinationals.

• Broader Settlement Program: Announcement by the Federal Tax Attorneys office suggests new mechanisms for cases mired in lengthy litigation.

• Not Quite Amnesty: The new program appears to offer more certainty in tax disputes, potentially resulting in mutually acceptable settlement positions for both Treasury and taxpayers.

• Risk and Time-Related Discounts: Proper calculation of these discounts could facilitate the resolution of protracted disputes.

INCREASE IN WITHHOLDING TAX (WHT) ON INTEREST ON EQUITY (INE)

• WHT Rate Increase: Proposed increase from 15% to 20%, effective immediately upon the proposed law’s approval.

• Clarification on Triggering Events: Focus on credit or payment, potentially capturing later payments of INE that are declared, accrued, but not yet paid.

• Strategic Positioning: This measure may open up negotiations on both dividend WHT and corporate tax rates.