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Brazil publishes guidance on US companies listed as privileged tax regimes

11 February 2019

ITR Correspondent

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Brazil's tax authorities have noted that 'non-resident' US companies listed as privileged tax regimes ought to be considered from a US, not Brazilian perspective

The federal Brazilian tax authorities (RFB) published guidance on December 14 2018 dealing with limited liability US companies based in the RFB’s list of tax havens and privileged tax regimes (Solução de Consulta 218/2018).

By way of background, the RFB’s Normative Instruction 1,037/2010 lists a series of countries which it considers tax havens, and also lists regimes/circumstances where an entity in a non-tax haven may be considered to be subject to a 'privileged tax regime’. Classification as a privileged tax regime may produce various adverse tax implications in Brazil, most notably from a transfer pricing and worldwide taxation legislation perspective, more restrictive thin capitalisation and general deductibility rules, as well as withholding tax implications in certain circumstances.

In relation to the US, the privileged tax regime list includes the following: 

With reference to the legislation of the United States, the regime applicable to legal entities constituted in the form of a state Limited Liability Company (LLC), whose participation is composed of non-residents, not subject to federal income tax.

Following development of the list, there has remained a discussion whether the term "non-resident" should be considered from a Brazilian or US perspective. SC 218/2018 has confirmed that the term "non-resident" refers to a non-resident from a US perspective. The position is based on broader analysis of the relevant provision. The RFB targets entities where both the entity itself and its shareholders are not subject to US federal tax.  

While a Solução de Consulta does not represent law or a legal precedent, it does provide further support and guidance for taxpayers in relation to the RFB position, especially in the context of the interpretation and application of a normative instruction (where litigation is less likely).

Priscila Vergueiro Priscila Vergueiro   Mark Conomy final Mark Conomy

This article was written by Priscila Vergueiro (priscila.vergueiro@pwc.com) and Mark Conomy (conomy.mark@pwc.com) of PwC Brazil.






International Correspondents