- Interest on related-party loans
- Safe harbor provisions for export transactions
Interest on related-party loans (NI 1,322/13)
Loan agreements signed and effective as of December 2012 - Interest paid or credited to a related party, with respect to a loan agreement between the related parties and that is not registered with the Central Bank of Brazil, is deductible for corporate income tax purposes only up to an amount not exceeding the LIBOR rate for six-month U.S. dollar deposits, increased by an annual 3% “spread.”
Loan agreements entered into as of January 2013 - The rules on interest and minimal revenue arising from related-party loans provide:
- For loans denominated in U.S. dollars (USD) at fixed rate, the “parameter rate” (i.e., the maximum or minimum rate depending on whether the transaction is inbound or outbound) is the market rate of the sovereign bonds issued by the Brazilian government on the external market, indexed in U.S. dollars.
- For loans in Brazilian real (BRL) at fixed rate, the “parameter rate” is the market rate of the sovereign bonds issued by the Brazilian government on the external market, indexed in BRL. In instances of loans denominated in BRL at a floating rate, the Ministry of Finance will regulate the parameter rate factor.
- For all other loans, the parameter rate is the six-month London Interbank Offered Rate (LIBOR). The spread rate may be determined by Brazil’s Ministry of Finance based on market conditions.
The renewal or renegotiation of existing loan agreement contract will trigger application of the new rules.
Safe harbor rule (NI 1,321/13 and 1,322/13)
Safe harbor rule for 2012 - To comply with the safe harbor rule for export transactions, the net pre-tax profits on exports to a related party must be a minimum 5% in the current year or for a three-year average (determined pursuant to the taxpayer’s election).
The Brazilian tax authority has not provided an adjustment mechanism for FY 2012.
However, for the purpose of three-year average calculation, the rules allow application of the adjustment mechanism for prior years (1.09% for FY 2010 and 1.11% for FY 2011).
Safe harbor rule as of January 2013 - To be eligible for the export transactions safe harbor, the net pre-tax profits on exports to a related party must be a minimum of 10%. However, the taxpayer is only eligible for the safe harbor when the export net revenue with related parties does not exceed 20% of the total export net revenue during the period.
Price adjustments due to payment terms - As of January 2013, price adjustments related to the payment terms must consider the rates established for loan agreements.
For more information, contact a tax professional with KPMG in Brazil:
+55 11 2183-3182
+55 11 2183-3375
+55 11 2183-3288
+55 11 2183-3278
+55 11 2183-1824
+55 11 2183-6596