- Special programs that allow the Brazilian states to collect outstanding indirect taxes with reduced penalty offerings
- An injunction on indirect tax benefits for computer-related products granted by São Paulo
- New information reporting requirements concerning cross-border sales
Special state-level programs for collection of outstanding indirect tax liabilities
The National Council of Financial Politics (Conselho Nacional de Política Fazendária (CONFAZ))—comprised of representatives of states under the chairmanship of the federal Minister of Finance—issued several “state agreements” (Convênios) authorizing several Brazilian states to implement a special program (known as REFIS) to expedite the recovery of state-level indirect tax (Imposto sobre Circulação de Mercadorias e Serviços—ICMS) liabilities.
In the Brazilian states where the REFIS programs are implemented, taxpayers are able to remit ICMS in monthly installments and may be granted amnesty on part or all of the penalties from such debts. For instance, the authorization for the state of São Paulo provides for a reduction of penalties by up to 75% and of other tax- related additions by up to 60%, provided that payments are made in cash. The authorization also allows payment by wire transfer.
Each Brazilian state must set its own deadlines and procedures under the special program. The state of São Paulo published its deadlines and procedures in the official gazette on 16 October 2012 (Resolução Conjunta SF/PGE 02/2012).
Supreme Court temporarily suspends indirect tax benefits on computer products, granted by the state of São Paulo
The Brazilian Supreme Court (STF) on 29 October 2012 granted the state of Amazonas’s request for a legal injunction against the state of São Paulo’s indirect tax (ICMS) incentives. Medida Cautelar Na Ação Direta De Inconstitucionalidade 4.635 São Paulo [PDF 315 KB]
The injunction suspends the levy of ICMS on a reduced taxable basis on the sale of specific computer products manufactured in the state of São Paulo, and also suspends the recognition of presumed credits on the purchase of goods used in the manufacturing process of such computer products, as well as the deferral of ICMS due upon importation of goods to be used in the manufacturing process.
Prior to the injunction, manufacturers receiving the incentives from the state of São Paulo had an ICMS taxable burden of approximately zero percent (0%), while Amazonas manufacturers’ ICMS tax burden was approximately 12% on the production of similar computer products.
Accordingly, the injunction is expected to affect the price of computer products manufactured in the state of São Paulo.
In Brazil, a country with 26 states and one Federal District, ICMS incentives are deemed constitutional only when approved and signed by CONFAZ. Nevertheless, many states grant ICMS benefits without CONFAZ approval creating what has been referred to as the “state tax war.”
New compliance requirements for services and intangibles
In summer 2012, legislation regulating the “integrated system of trade services, intangibles and other operations that result in changes in equity” (SISCOSERV) was published in Brazil’s federal official gazette. RFB n. 1.277/12
The legislation requires Brazilian entities contracting with non-Brazilian entities to register certain transactions with the Brazilian tax authorities—including cross-border transactions for services and intangibles and other transactions affecting a taxpayer’s net wealth.
The legislation’s requirements, for example, extend to U.S. multinational companies investing in Brazil and U.S. subsidiaries of Brazilian parent companies.
The requirements became effective on two dates:
- On 1 August 2012 - for construction, collection/delivery of documents or small objects, and maintenance, repair, and installation
- On 1 October 2012 - for legal, accounting, personal care, and publication and printing services, among others
The new reporting rules require affected entities to declare all necessary information relating to these transactions within a particular time frame (i.e., within 90 days of specified dates set out in legislation, depending on type of transaction involved) and provide details of sales and receipts tied to the associated registered transaction within 30 days from billing or payment date.
When entities are late in declaring the necessary information, they can be assessed with significant penalties of up to R$ 5,000 per month (approximately U.S. $2,400). When entities have missing, inaccurate, or incomplete information, the penalties are set at 5% of the value of the transactions.
For more information, contact a tax professional with KPMG in Brazil.