Brazil. Country Tax up-date Iberoamerica Tax Summit October 2012 Buenos Aires, Argentina

Transcription

1 Brazil Country Tax up-date 2012 Iberoamerica Tax Summit October 2012 Buenos Aires, Argentina

2 Agenda Murilo Mello, tax partner at KPMG Brazil Agenda Brazil s Economy and perspectives Tax Updates Tax Incentives Tax Trends Conclusion 2

3 Brazil s economy and perspectives 3

4 Brazil s Economy Current tax and economic environment Brazilian economy overtakes UK's, says CEBR Source: Tax disputes could represent R$ 342 billion loss for the government Source: Brazil is the most expensive country among emerging economies to do business Source: Rich countries are making pressure at OMC against Brazil Source:

5 Brazil s economy Country s fact North Northeast Central-West Southeast Source: IBGE 2010/2011, IBGE Síntese de Indicadores Sociais 2010 Region Population GDP/ capita North 16 million (8%) USD 4,267 Northeast 54 million (28%) USD 3,237 Central-West 14 million (7%) USD 8,600 Southeast 80 million (42%) USD 9,100 South 28 million (14%) USD 7,778 % country s GDP 5% 13.1% 8.8% 56,4% 16.6% South 5th largest country in the world GDP (2011): USD 2.35 trillion Federal capital: Brasilia Currency: Real Population (2011): million people (87% urban) 26 states, one Federal District and 5,565 municipalities

6 Brazil s economy High Performance indicators Brazil s economy is riding the worldwide boom in raw material/commodities New offshore oil discoveries (deep water drilling - pre-salt) Local alternative energy technology (ethanol-based and others) Major sport events (2014 World Cup and 2016 Olympic Games) 6

7 Brazil s economy Potential downside issues But... Ever changing legislation Common administrative and judicial litigation Increasingly electronic tax compliance and several fillings Multiple indirect taxes, charged on the same taxable event Protectionism measures adopted to defend local currency or domestic industry Tax policies or tax changes capable of immediate implementation and effectiveness (e.g. IOF, IPI) 7

8 So, what does it take to win in Brazil? What are the major markets? Are there any incentives for locating in a certain city / state? What are the key trends? Are customer needs different here? How do we negotiate tax incentives? What about inflation? Foreign exchange controls? We need a general understanding of Brazil Who influences the purchasing decision? Aren t there duty free zones? What are the risks there? Where are our customers located? Where should we locate our manufacturing facility? What are the credit markets like? I hear labor legislation is one of the most complicated in the world, is that true? How do competitors operate? What are the competitors 'business models? What is the cost of living? How to comply with Brazilian Transfer Pricing rules? What is the political climate? What are the risks? PIS, COFINS, ICMS, ISS, CIDE, IRRF, IOF why so many taxes? Is it better to import product or manufacture locally? Lucro Real or Lucro Presumido What Corporate Income tax regime to opt? What are the environmental restrictions? Our only security is our ability to change John Lilly

9 Brazil Tax Updates 9

10 Tax Updates Snapshot of the main tax legislation issued Senate Resolution Law 12, (conversion of MP 563/12) MP Normative Instruction 1, Decree 7, Draft MP New CIT regime / Goodwill...Pending 10

11 Tax Updates Transfer Pricing Law 12,715/12 (conversion of MP 563/12): Resale Price Method ( PRL ) New margins per sector (20%, 30%, 40%) Price under quote on import Method ( PCI ) Mandatory for commodities transactions 40% - pharmaceutical, tobacco, oil & gas and medical devices 30% - chemical, glass, pulp & paper and steel production 20% - remaining sectors Price under quote on export Method ( PECEX ) Mandatory for commodities transactions only) Intra-Company Loans (interests limitation: LIBOR + 3% spread) Annual review or changes on the % spread 11

12 Tax Updates Transfer Pricing - main debatable issues Fixed margins Still a feature of Brazilian TP method Possibility to request special margins per sector (revisiting Portaria 222/08?) Termination of PRL 60 method But does not affect existing tax litigations (Law vs Normative Instruction) Existing related party loans Necessity to review or grandfathered? TP audit TP method elected could not be changed after a TP audit is initiated 12

13 Tax Updates COFINS Imports tax rate increase Total COFINS Imports for certain products => 8.6% Law 12,715/12 and MP 582/12: set out list of products subject to 1% COFINS increase Applicable to listed products: Plastics Products made by rubber Leather Textiles Mechanical devices and instruments Vessels Electrical materials Debatable issues COFINS credit: 7.6% or 8.6%? Productive and Non-Productive materials credits? 13

14 Tax Updates General tax incentives (Law 12,715/12) Inovar-Auto Automotive sector IPI presumed tax credit may be granted to companies established or planning to establish in Brazil Commitment to promote R&D and environmental protection PADIS Semi-conductor sector Reduced Income Tax, IPI, PIS-COFINS and CIDE rates Broad application of the 2007 PADIS regime Others PROUCA / REIMCOP (hardware equipment for education) PRONON (health programs) REPNBL-Redes (telecom network) 14

15 Tax Updates General tax incentives (MP 582/12) Accelerated depreciation Legal entities subject to the actual profit method Accelerated depreciation rates as of Applicable for listed fixed assets acquired within the period September 16, 2012 and December 31, 2012 Special Regime for the fertilizer industry ( REIF ) Aimed at encouraging infrastructure development of the fertilizer industry Tax benefits under the form of PIS-COFINS-IPI suspension on leasing and purchase of machinery, equipment and tools Special Regime for defense industry ( RETID ) Sales to the Brazilian government and army are PIS-COFINS zero rated PIS-COFINS suspension ( Export orange juice ) Oranges sold for orange juice exported are PIS-COFINS exempted 15

16 Tax Updates Social Security benefit ( INSS ) Law 12,715/12 and MP 582/12 INSS-employers Current rate 20% => option to replace it by a tax on gross sales of 2% or 1% rates Available for entities engaged in about 15 different business sectors:» IT» Mineral and vegetal products» Call centers» Glass» Hotels» Clothes» Transport» Different equipments and machines Benefit limited to INSS-employer ; other contributions upon the payroll remains unchanged Effective: from January, 2013 until December,

17 Tax Updates Draft legislation (goodwill) Potential significant changes Applicable for IRPJ/CSL/PIS-COFINS Termination of the Transitory Tax Regime ( IFRS harmonization ) If the MP is passed and converted into the law (subject to changes): Goodwill Accounting rules ( PPA ) should prevail for price allocation and goodwill determination Goodwill treatment» After : amortization should be deferred (4 th calendar-year after the merger implemented)» Up to : amortization could follow previous rules Appraisal and supporting documentation should comply with specific rules Related party transactions ( in-house ) should not give rise to goodwill 17

18 Tax Updates Draft legislation (goodwill) Creation of the E-Lalur Electronic tax compliance to demonstrate all adjustments to CIT basis Filled through SPED Concept of revenue Might suffer changes, which may potentially increase taxation (e.g. PIS-COFINS) Depreciation rates Tax rates issued by tax authorities could be acceptable Changes on CIT regimes (Actual Profit ~ Presumed Profit) Might generate tax impacts (e.g. fair value adjustments) 18

19 Tax Updates Infrastructure and real estate bonds Infrastructure bonds and real estate notes Law 12,431/11 (bonds): Publicly traded bonds; Fixed interest, linked to price indexes; 4-yrs average term, vesting period of min 2 yrs during which the issuer cannot repay or buy back the debt; No commitment from the bond owner re repurchase of the bond Law 12,715/12 (real estate notes CRI) Specific conditions (e.g. 4-yrs average term, registrations with BACEN or CVM, etc.) ABROAD BRAZIL Foreign Holding entities Braz Opco Brazilian tax consequences: WHT tax exemption IOF exemption Tax deductibility

20 Tax Updates Cross-border services compliance system SISCOSERV Transactions involving the import and export of services or intangibles, between residents or domiciled in Brazil and residents or domiciled abroad, should be reported to the government (MDIC) Transactions should be codified under NBS system Different timetable for reporting purposes (e.g. 08/2012 started for construction services and 02/2013 will start for financial services) Possible and important issues More visibility on services-intangibles transactions SISCOSERV could build a major database for economic reasons and others Different concepts could attract discussions (e.g. transfer of intangibles, transactions which may affect unincorporated entities, etc.) 20

21 Tax Up-dates Senate Resolution 13/2012 (ICMS) 4% ICMS rate over interstate operations with imported goods (effective after ): Not subject to industrialization process; When subject to industrialization procedure results in goods with import content higher then 40% Objective: to tackle ICMS harmful tax competition among states Possible issues Even though most part of states incorporated the Senate Resolution, potential litigation may follow Re-assessment of supply chain structures SP (São Paulo state) ES (Espirito Santo state) 2011 KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in Brazil. 21

22 Tax Updates Mercosur Expanding Mercosur and regional focus Intention to create one real custom duty free trade area (target 2018): customs duties should be paid only once, terminating the current exemption regime for certain products (NCM) Payments in local currency (R$ and Pesos) for certain transactions Top issue on the governmental agenda Accession of Venezuela to Mercosur But still pending on final Brazilian Congress approval 22

23 Tax Trends 23

24 Tax Trends Major tax reform Current Brazilian tax issues: Cumulativeness Increased investment costs ICMS taxation and Fiscal War Excessive payroll taxation These are the common issues in the eyes of taxpayers and government, but there is no immediate solution in the short term But the solution adopted so far are changes implemented per tax 24

25 Tax Trends Electronic tax compliance Accounting Increasingly cross-check information among Federal, State and Municipal NF-e Tax Tangibles and intangibles transactions will be assessed and SPED Necessity of strong ERP systems for data quality control Possible reduction on the total number of tax reports (FY2015 onwards)

26 Tax Trends Tax incentives for different sectors Recently, the government launched a package of concessions of roads and railways to the private sector. The investments are around of R$ 133 billion (approx. US$ 66 billion), the largest investment in the country related to private sector Airports and Ports are also key areas of investment Tax incentives policies should be maintained in the medium-long term Oil & Gas incentive (REPETRO) and SUFRAMA (Manaus free trade zone) are targeted to be finalized around 2020~2023 but changes of postponement Customs Duties, PIS, COFINS and IPI are common taxes utilized for incentive 26

27 Conclusion 27

28 Conclusion How to navigate in one environment that possible future events may impact the business How to be prepared and discuss with the executive committee possible tax implications that may arise as a result of these business impacts What could be presented to the executive committee regarding tax planning and tax opportunities to review business strategy in case it is needed 28

29 Conclusion The Triple Approach Direct taxes Challenges on IFRS changes Indirect taxes Tax incentives and exposures Compliance Electronic and internal controls Issues No tax consolidation Supply chain management Tax audit Risks Opportunities TP and crossborder structuring Optimal tax regime and structure Flexibility on supply chain arrangements Full understanding of tax incentives and transactions Investments on ERP and external support 29

30 Conclusion Examples Federal Municipal Estadual 1. Company with indirect tax credit trapped creation of a tax dashboard based on SPED and restructuring of supply chain 2. Company with different legal entities and tax positions (profit/loss) optimization of corporate structure and rental of assets 3. Company with high tax burden on intra-group transactions analysis of potential tax savings by segregating services/royalties and TP issues

31 Muito Obrigado! Thank you very much! Muchas Gracias!

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