Originally published in the December 19 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s official gazette of December 17 published presidential decree No. 6,306/2007, which revokes the former financial transactions tax (Imposto sobre Operações Financeiras, or IOF) regulation (Decree No. 4,494/2002, as amended) and issues a new one that became effective as of its publication. The IOF applies on credit, insurance, exchange, securities, and gold transactions.
The new IOF regulation repeats most of the provisions of the revoked one; most of the changes only update the regulation vis-à-vis new financial instruments, such as agribusiness letter of credit, receivables, certificates of deposit, warrants, and so forth.
A major change, more political than technical, was the revocation of powers granted by the former IOF regulation to Brazil’s finance minister to reduce IOF rates to pursue adjustments in monetary and fiscal policies. With the power revocation, only a decree issued by the president can introduce IOF rate changes.
Many argue that the revocation was a political response from president Luiz Inácio Lula da Silva against Brazil’s Finance Minister Guido Mantega who, after the government’s defeat in the Senate to extend the 0.38 bank transactions tax (CPMF), has declared that the government would increase other taxes to compensate losses in CPMF tax revenue. After that statement by Mantega, President Lula da Silva said that no tax increase would replace CPMF.
The new IOF regulation also increases IOF on loans between Brazilian nonfinancial companies. The regulation changes the way IOF is calculated in loans for indefinite terms, which may lead to an IOF of up to 1.5 percent of the loaned amount. The regulation considers that a loan for an indefinite time must be subject to the same IOF applicable to a one-year loan (1.5 percent).
The levy of IOF on loans between nonfinancial companies has been challenged by corporate taxpayers in court under the argument that it would apply only to financial institutions.
David Roberto R. Soares da Silva