In Brazil, there are no specific domestic tax regulations for cost reimbursement arrangements. Traditionally, the tax authority (Receita Federal do Brazil—RFB) has imposed a high tax burden of multiple taxes—with rates ranging between approximately 40% to 42%—and has denied the deductibility of payments related to cost reimbursement arrangements.
However, the RFB recently issued an ruling, pursuant to a formal consultation request filed by a taxpayer, that a cross-border cost reimbursement arrangement would be acceptable for a reduction in taxes, provided the reimbursement / recoupment of costs and expenses “…takes place upon objective and reasonable criteria,” among other requirements (e.g., the existence of written contracts, absence of mark-ups, etc.).
As indicated in the RFB's opinion, Brazilian cross-border taxes would be significantly reduced and the tax deductibility accepted.
This opinion reflects an important change from the RFB's previous position regarding cross-border reimbursement arrangements. Even though this opinion is not binding for all taxpayers, the potential opportunities could be significant for multinational entities with Brazilian subsidiaries.
How can taxpayers effectively respond to this new development? A tax feasibility analysis may best demonstrate potential cost and expense “re-chargeables” as well as other Brazilian tax issues (the impact of cross-border taxes, tax deductibility supporting documentation, etc.). Considering the complexities involved, a team approach—tax, legal, and transfer pricing—may be the most prudent way to respond.
For more information, contact a KPMG tax professional with KPMG’s Americas Center or with KPMG in Brazil:
202 533 5681
305 913 2789
55 11 218 33 216
55 11 218 33 288
Or contact a tax professional with KPMG's Global Transfer Pricing Services.