Originally published in the February 10 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazilian President Luiz Inacio Lula da Silva has signed a decree regulating the zero rate withholding tax applicable to certain payments made by Brazilian companies abroad. Presidential Decree no. 6,761/2009 was published in the official gazette on February 6.
The zero rate withholding tax applies to payments for market research on Brazilian exports and to payments of expenses related to Brazilian companies’ participation in exhibitions, trade fairs, and similar events.
Some payments were already subject to a zero rate withholding tax, but the decree consolidates all such payments. It also establishes reporting obligations for Brazilian payers, which now have to report in detail the purpose of their payments.
Article 1 of the decree lists payments made outside Brazil that are subject to the zero rate withholding tax as follows:
- payments for market research and for rentals and leasing of stands and spaces in exhibitions, trade fairs, and similar events abroad, including promotion and advertising associated with those events and with Brazilian products and services, and for the promotion of Brazilian tourist destinations;
- payments for the hiring, by bodies and agencies of the federal government, of services to promote Brazil abroad, including communications consulting and media and public relations;
- commissions paid by Brazilian exporters to their agents abroad;
- payments for the storage, movement, and transportation of cargo and the issuance of documents abroad, including payments for logistics services abroad, as long as the Brazilian exporter is able to provide evidence of a link between the payment and a Brazilian export;
- hedge payments to cover risks involving interest, exchange rates, and commodity prices in international markets;
- expenses related to discounts of export bonds and papers abroad and related banking commissions; and
- interest payments and commissions related to credit obtained abroad for the purpose of financing Brazilian exports.
The decree clarifies that except for the last two items cited above, any payment made to a beneficiary (whether an individual or a legal entity) resident in a low-tax jurisdiction is not eligible for the zero rate withholding tax. In those situations, the applicable rate is 25 percent.
Depending on the type of payment, the Brazilian payer is required to report details of payments subject to the zero rate withholding tax as set forth in the decree. Article 10 of the decree, however, seems to create a special return in which payments abroad would be reported as of January 1, 2009. The necessary information includes amounts paid abroad, identification of the beneficiary, and country of residency.
Violation of or failure to comply with the provisions of the decree may result in retroactive withholding tax liability, plus penalties and interest, and ineligibility for the benefits in the decree until the failure or violation is cleared.
The Ministry of Development, Industry and Foreign Trade, the Brazilian Institute of Tourism, the Central Bank, and the Federal Revenue Department soon will issue further regulations within their corresponding jurisdictions for the full application of the decree.
David Roberto R. Soares da Silva