Originally published in the May 8 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Federal Revenue Department has finally issued a specific regulation on the tax treatment of consortia of companies. The regulation was issued through Normative Instruction No. 834/2008, published in Brazil’s official gazette March 28.
For years the tax treatment of consortia has been clarified by Brazilian tax authorities on a case-by-case basis, particularly by means of private letter rulings (PLRs), with the disadvantage that the PLRs were not binding for other taxpayers.
The new regulation confirms and makes uniform positions taken in previous PLRs, which are now applicable to all corporate taxpayers.
Consortia are regulated in articles 278 and 279 of Brazil’s Corporations Act (Law No. 6,404/76). A consortium is an association of two or more companies with the objective of participating in a common activity or pooling their resources for achieving a common goal.
Consortia have become more common in recent years as Brazil has privatized its telecom sector and opened the energy market to the private sector for the construction and operation of power plants. They are also broadly used in infrastructure projects, such as the construction of subway lines and hydroelectric power plants and the operation of public concessions.
A consortium formed in accordance with articles 278 and 279 of the corporations law is not a legal entity per se, in which the legal and tax autonomy of each member is not altered.
Normative Instruction 834/2008 confirms the nonexistence of the corporate status of consortia and clarifies many aspects related to allocations of income, costs, and expenses by consortium members. Its 11 articles deal with allocation of income, costs, and expenses; accounting records; bookkeeping; issuance of tax invoices; P.I.S. (Program for Social Integration contribution) and COFINS (Contribution for the Financing of Social Security) liabilities and credits; and tax withholdings.
David Roberto R. Soares da Silva