Originally published in the April 4 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil has broadened its tax incentives for infrastructure projects in the energy, transportation, and pipeline sectors, and has clarified the application of the incentives.
Presidential Decree 6,419/2008, published in Brazil’s official gazette on March 31, amends Decree 6,144/2007 on the Special Incentive Regime for Infrastructure Development (REIDI) that was created in early 2007.
REIDI exempts eligible companies from P.I.S. (the Program for Social Integration contribution) and COFINS (the Contribution for the Financing of Social Security) on local purchases and imports of new machinery, instruments, equipment, and construction materials to be used in infrastructure projects in general and in infrastructure works that will be included in the companies’ fixed assets.
For the energy sector, REIDI tax incentives have been extended to the production and processing of natural gas in any form. Decree 6,419 also eliminates the previous limitations on the types of electrical energy sources eligible for the incentives. From now on, any type of energy generation or transmission is eligible for REIDI tax breaks.
Decree 6,419 also extends REIDI tax incentives to transport pipelines, such as oil and gas pipelines.
Regarding the transportation sector, Decree 6,419 specifies that private ports, trains, and railroad cars now are eligible for REIDI benefits. Previously, REIDI provided benefits to railroads and ports in general, which led to confusion about whether private ports, trains, and railroad cars also were eligible.
For the sanitation sector, the REIDI regulations previously granted tax incentives for basic sanitation, including potable water supply and waste management. Decree 6,419 inserts a clause clarifying that the REIDI incentives apply exclusively to potable water supply and waste management.
The new decree also adjusts the starting point for the initial five-year term that REIDI tax incentives can be applied. Decree 6,144 previously provided that the application period began the same day an infrastructure project was approved by the Brazilian competent authority. Decree 6,419 provides that the initial term begins on the date of acquisition of the relevant good, which is usually months after the project is approved.
David Roberto R. Soares da Silva