Originally published in the June 1 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Federal Revenue Department (FRD) estimates it will waive BRL 900 million (about $485 million) in federal taxes between 2011 and 2015 for Brazil to host the 2014 soccer World Cup. The tax exemptions are in law projects submitted by the executive branch to Congress on May 26.
FRD officials presented the estimate on May 27 at a public hearing before Brazil’s House Commission of Financial Audit and Control. The estimated amount refers only to federal taxes, such as income tax, withholding tax, import duties, and social contributions; it does not include state and local taxes, such as the state VAT (ICMS) and the local service tax (ISS), which should be waived by the state and local governments.
The federal tax breaks in the law projects meet FIFA’s demands for Brazil to host the World Cup, FRD Coordinator General of Taxation Fernando Mombelli said at the hearing. FIFA requires special conditions regarding customs duties; other tax exemptions for foreign and local suppliers; and special immigration, customs, and check-in procedures. FIFA may file for indemnifications if Brazil fails to meet FIFA’s conditions, Mombelli said.
The two law projects sent to Congress call for full tax exemptions for FIFA and other entities that will render services connected with the World Cup. Among the imported goods that will receive tax breaks are food, pharmaceuticals, promotional and advertising materials, fuel, sports equipment, and broadcasting services. Also, construction works for the World Cup stadiums will be exempt from federal taxes; the FRD estimates the civil construction exemption might amount to BRL 340 million (about $183 million).
One obstacle the executive branch faced was adapting the tax breaks to FIFA’s legal status as a foreign entity. Brazilian tax laws do not allow tax exemptions to be directly granted to nonresident entities. The FRD therefore requested FIFA to set up a Brazilian subsidiary to receive the tax breaks, said FRD official Augusto Carlos Rodrigues. Only companies authorized by this subsidiary can enjoy the tax breaks, which are expected to enter into force in 2011.
FRD officials clarified that only the broadcasting company hired by FIFA to be the primary broadcaster will be tax exempt; distribution or broadcasting by other companies will be taxed.
The full text of the law projects is not yet available. FRD officials said that for the tax breaks to become effective January 1, 2011, Congress must review and approve them before the end of 2010.
David Roberto R. Soares da Silva