Originally published in the May 25 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s House Commission of Economic Development, Industry, and Commerce on May 5 approved a controversial law project that would require any foreign company applying for a tax ID number to fully disclose ownership abroad up to the level of the ultimate individual owners.
Law Project No. 5696/2009 was presented on August 5, 2009, to the House of Representatives by lawmaker Paulo Rubem Santiago. With only five articles, the project is already generating controversy and debate about its application and possible adverse consequences to Brazil.
Currently, foreigners holding assets that require public registration — including equity in Brazilian companies, vehicles, aircraft, vessels, real estate, investments in financial markets — are required to obtain a Brazilian tax ID number (Cadastro Nacional da Pessoa Jurídica, or CNPJ). Historically, application has been simple, requiring only the disclosure of the foreign company’s address and the appointment of a Brazilian-resident representative. In many cases, a CNPJ was issued within a few days.
Law Project No. 5696/2009 would change the application process to require full disclosure of the foreign company’s ownership up to the level of individuals. It also would require updates of the ownership information whenever a change is made abroad. Finally, the law project says foreign companies that already have a CNPJ will have 180 days after the conversion of the project into law to comply with the new rules. Otherwise, the company’s CNPJ may be suspended and transactions with the foreign company may be adversely affected (although the law project does not mention the consequences).
Santiago said the project’s purpose is to provide the administration and judiciary more information about foreign owners of Brazilian assets. When investigating foreigners, the administration is usually only able to identify their local representative, against whom very little can be done when assessing liability for illicit conduct in Brazil.
Because no other information on the foreigner is available locally, it is virtually impossible to continue any further investigation. Thus the purpose of the law project is to attain more knowledge on foreigners holding Brazilian assets, including equity interest in Brazilian companies.
The law project will now go to the House Commission of Finance and Taxation and then to the Constitution and Justice Commission. If approved by all House commissions, the project will go to the Senate because commissions have conclusive powers over the project, eliminating the need for debate and review by the full House of Representatives.
Comments
The law project could have adverse consequences in Brazil. In many cases, it is virtually impossible to reach the level of individual owners, particularly in cases of publicly traded companies or those located in countries that provide ownership secrecy. As a consequence, local businesses owned by foreigners could be affected if full compliance with the new CNPJ is not possible. This would be detrimental to Brazil because investment would be driven to other locations.
David Roberto R. Soares da Silva