Brazil macroeconomic and tax overview PwC Tax Brazil

Transcription

1 Brazil macroeconomic and tax overview PwC Tax Brazil December, 2010

2 Foreword Brazil has matured, both from an economic and political point of view. The economic prospects in 2010 are favorable. Amongst others, low level l inflation, lower country risk (Brazil turned investment t grade in 2008), favorable demographics and strong currency make Brazil a very attractive market for foreign investments. Prospective investors still encounter difficulties overcoming complex regulatory, tax and legal issues. PwC 2

3 Agenda Section 1 Main drivers and challenges Section 2 Tax System Section 3 Double Tax Convention Brazil Norway Section 4 Taxation on imports Section 5 REPETRO regime Section 6 Specific regulatory & tax issues for vessel activities in Brazil Section 7 Individual s taxation Section 8 Planning opportunities PwC 3

4 Section 1 Main drivers and challenges PwC 4

5 GDP GDP growth at constant purchase price (US$ billion at average exchange rate) Source: BACEN Banco Central do Brasil IBGE Instituto Brasileiro de Geofísica e Estatística PwC 5

6 GDP GDP actual annual growth (% p.a.) 7,0 6,0 5,0 4,0 3,0 4,3 2,7 5,7 3,2 40 4,0 6,1 5,1 2,0 1,0 1,3 1,1 0,0-1, ,2 Source: BACEN Banco Central do Brasil IBGE Instituto Brasileiro de Geofísica e Estatística PwC 6

7 Economic overview and population data Economic overview The largest economy in Latin America and the eighth in the world Primary economic sectors are: agriculture, automobile, utilities, transport, industry, mining and energy Main economic states: São Paulo, Rio de Janeiro, Minas Gerais and Paraná Population data Average life expectancy of 72 years Young population 40% is under 20 years of age Less than 7% is over 65 years Experts on O&G activities i i are increasing i PwC 7

8 Some points Growth potential and consumer market Large number of infrastructure projects boosted by World Cup (2014), Olympic games (2016) and large pre-salt discoveries Multiple taxes with fast changing legislation affecting business plans and increasing risks of contingencies Complex tax and labor regulatory environment, with high taxes and social charges on payroll, sales and income Complex transfer pricing and foreign capital restriction rules Judicial Courts decisions is time consuming The Government offers tax benefits to attract new investors Increasing electronic tax compliance in the last years Convergence of the accounting standards to IFRS began in and is happening at a fast pace PwC 8

9 Some points (cont.) Pre-salt discoveries potentially represent both a major increase in Brazil s oil reserves and a huge technologic and logistics challenge (pre-salt areas generally >300km from the shore) World wide leader in the exploration of oil in deep waters. Petrobras Business Plan has a record US$ 118 billion investment in the E&P activities for (Brazilian suppliers expected to represent 53% of total E&P investment) Petrobras alone operates 18% of all O&G vessels (FPSO and others) in the world Petrobras oil production expected to reach 3,9 Mbpd in 2020 (2010: 2,1 Mbpd) Bids to contract 28 rigs in Brazil between and more than 200 supply and special vessels Petrobras alone estimates a HR GAP of 207,000 professional to fulfill its business plan PwC 9

10 Some points (cont.) Concession bid requires local content (increase pressure from Brazilian suppliers) O&G Exploration and Production requires local company New regulatory mark for the pre-salt areas (Production Sharing Agreements) pending approval in Congress (expected for 2011) New entrants in the E&P activities with relevant business plans, such as OGX/OSX, Shell, BP, Statoil and Repsol PwC 10

11 High country risk premium: why? Heavy Public Sector Deficit and Public Debt (% of GDP) 70,0 60,0 50,00 40,0 49,3 49,8 58,2 53,0 49,5 47,1 46,1 44,4 39,1 43,9 30,0 20,0 10,0 0,0 9,5 4,5 4,8 38 3,8 2,6 32 3,2 34 3,4 2,6 2,0 32 3, Debt Deficit Source: BACEN Banco Central do Brasil PwC 11

12 High country risk premium: why? Brazilian Public Debt is financed by one of the highest interest rates in the world. 25,0 22,0 20,0 17,4 17,3 16,5 17,8 18,5 15,0 13,3 13,8 11,3 10,8 10, ,8 5,0 0, Source: BACEN Banco Central do Brasil PwC 12

13 High country risk premium: why?. And by one of the highest Tax/GDP ratios in the world. 40,00 % 35,00 % 30,00 % 28,92 % 27,38 % 25,00 % 25,19 % 25,47 % ,67 % 31,01 % ,65 % 32,54 % ,49 % 34,13 % 34,52 % 34,69 % 35,16 % 35,02 % ,63 % 20,00 % 15,00 % 10,00 % 5,00 % 0,00 % 1995 Source: IBPT Instituto Brasileiro de Planejamento Tributário PwC 13

14 Section 2 Tax System PwC 14

15 Federal taxes Corporate income taxation Corporate Income Tax (IRPJ) and surcharge Social contribution net profit (CSLL) Income tax on individuals (IRPF) Social Security Financing Contribution (COFINS) Social Integration Program Contribution (PIS) Contribution ti to the Economic Domain Intervention (CIDE) Federal excise tax on industrialized products (IPI) Import tax (II) and Export tax (IE) Financial operations tax (IOF) Rural real estate tax (ITR) PwC 15

16 State taxes & Municipal taxes State Taxes Value-added tax on sales and services (ICMS) Inheritance and gift tax (ITCMD) Automobile tax (IPVA) Municipal Taxes Service tax (ISS) Urban real estate tax (IPTU) Real estate transfer tax (ITBI) PwC 16

17 Withholding Tax - IRRF Currently, the rates below are applicable to the following payments to non residents: Dividends Interest Royalties Not Taxable Management fees 15% (*) (**) Technical services and assistance Other services 25% (*) () (*) These rates are effective unless otherwise specified ifidby a tax treaty Section 4 for more details. (**) Payments of any type (besides dividends) made to tax haven jurisdictions that do not tax income or tax income at a rate lower than 20%, will be subject to withholding at a rate of 25% (numerus clausus list of tax havens and special tax regimes at Ruling 1,037/2010 of the Internal Revenue Service) PwC 17

18 Some important aspects of the Corporate Income Taxes (CIT) Total corporate income tax burden of 34% Tax loss carry forward Tax losses may be carried forward indefinitely, but offset is limited to 30% of the annual taxable income prior to the compensation Tax losses of an acquired company can not be carried forward to be offset against the taxable income of a new activity if the following two conditions are simultaneously met: a) modification in the ownership of the company; and b) modification in the activity of the company. PwC 18

19 Capital gains and dividends Capital gains capital gains obtained by local resident companies are taxed at the normal corporate rate (34%) capital gains of non-residents are taxed at the rate of 15% (unless otherwise specified by an international tax treaty), or 25% in case of payments made to tax havens. The same regime applies in case of license transferring (e.g., farm out) Dividends to shareholders dividends are not subject to withholding income tax, if paid out of profits generated as of January 1, 1996, regardless of whether they are paid to a resident or non-resident shareholder. remuneration to shareholders can be based on the interest on net equity (please see Section 7). PwC 19

20 Brazilian Controlled Foreign Corporation s Rules Foreign-source profits of controlled and affiliated foreign corporations were used to be taxed in Brazil only at the time they were considered available to the Brazilian controlling company (distribution, credit on account etc.) Tax law issued in 2001 changed that systematic by establishing that profits will be considered available to the Brazilian shareholder each year at 31 December following the closing of the CFC s financial statements. The foreign profits are subject to Brazilian corporate income tax and social contribution at the combined rate of 34%; To avoid the above-mentioned taxation, Brazilian entities might consider the possibility of incorporating entities in certain tax-treaty t t jurisdiction to conduct their offshore activities (usage of this structure is under discussion in administrative courts). PwC 20

21 Brazilian Tax Treaties Network Argentina Austria Belgium Canada Chile China, P.R Czech Republic Denmark Ecuador Finland France Hungary India Israel Italy Japan Korea, Rep. of Luxembourg Mexico Netherlands Norway Peru Philippines Portugal Slovak Republic South Africa Spain Sweden Ukraine Treaties under negotiation or not yet ratified: Romania, Switzerland, the UK, the US and Venezuela Germany terminated its tax treaty with Brazil with effects as from January 2006 Reciprocal tax treatment with the UK, the US and Germany (individuals). PwC 21

22 Transfer Pricing rules key aspects Adherence to the arm s length standard. Uses OECD Style Methods. Scope of Regulations. Specific Filings and Dates. Not at all, but in specific points of the legislation. Only the CUP and the Cost Plus Method. 1. Imports/Exports of goods, rights, and services with related parties. 2. Transactions entered into with countries with favourable taxation or which have secrecy laws or privileged tax regimes. 3. Interest not registered with BACEN. Special form in the Tax Return. Electronic data ( AUDIN ). As part of the Tax Return June 30 th. Upon request of the tax authorities (in case of audit). PwC 22

23 Transfer Pricing rules Key aspects Brazilian rules vs. OECD Guidelines Broad definition of related party Absence of methods based on income Maximum and minimum margins stipulated in legislation Methodology: Utilization of current market prices Documents to be maintained by taxpayers include only invoices, calculations supporting payments and electronic files ( AUDIN ) TP issues on the O&G activities (Vessel companies, please refer to section 6) PwC 23

24 Thin capitalization rules Effective as of January, 2010; Related parties, tax havens and privileged tax regime : concept borrowed from Brazilian Transfer Pricing i rules Thin cap rules provide deductibility thresholds for interest accrued in all forms of financing (i.e, loans, bonds, debt notes, prepayments) as follows: - 2 x 1 debt/equity ratio for the sum of all debt with related parties; - 0,30 x 1 debt/equity ratio for the sum of all debt with entities in tax haven and privileged tax regime jurisdictions Interest expenses and gains are deductible d (if within thin cap threshold) and taxable on accrual basis (Loan ballooning: no withholding tax until the time of payment but interest deduction on accrual basis) PwC 24

25 Financial Transactions Tax (IOF) IOF of 5.38% is charged on foreign loans with an average maturity of less than 90 days. All other foreign loans, from October 23rd, 2008 onwards, are subject to IOF at 0% rate Capital contributions are subject to 0.38% IOF Current IOF rate for payment of dividends and interest on net equity is also 0.38% Payments for the importation of goods and fixed assets are subject to 0.38% IOF PwC 25

26 Taxes levied on the importation of goods Taxes on imports are levied on top of one another, as follows: I. II is levied on the CIF price (FOB price plus insurance and freight); II. III. IV. IPI is levied on CIF price plus II; ICMS levied on CIF price, plus II, IPI, PIS and COFINS due on imports. ICMS is included in its own basis; PIS and COFINS are levied on CIF price plus ICMS due on imports. They are included in their own bases. Import tax (II) is considered cost (not recoverable). ICMS, IPI, PIS and COFINS paid on imports are generally creditable against internal due ICMS, IPI, PIS and COFINS. PwC 26

27 Taxes and contributions administrated by the Internal Revenue Services (Federal Level) Import tax 4% CPMF 0 % CIDE 1 % Other taxes 8 % PIS/Pasep 6 % Income tax 36 % Cofins 25 % IOF 5% Excise tax 7% CSLL 8 % PwC 27

28 Tax Incentives/Benefits applicable in Brazil Federal Level ADA/ADENE areas (North and Northeast) Income Tax (IRPJ) reduction (up to 75%) and tax exemption on the import of certain equipment Free Trade Zones (i.e. Manaus) goods acquired in these free trade zones do have tax exemptions for PIS, COFINS, Import Duties (II) and Excise Tax (IPI) Special Customs Regimes i.e. Temporary Admission, Drawback, Blue Line, RECOF, REPEX, REPETRO, REPORTO, RECOM, Bonded Warehouse, among others Exports tax exemption from PIS, COFINS and Excise Tax (IPI) Exporters PIS and COFINS exemption on the acquisition i i of fixed assets PwC 28

29 Tax Incentives/Benefits applicable in Brazil State level Special Programs, such as, FOMENTAR (State of Goiás); PROVIN (State of Ceará), PRODEP (State of Pernambuco), DESENVOLVE (State of Bahia) and FUNDOPEM (State of Rio Grande do Sul), which grant deferral of ICMS payment and/or reduction of the tax calculation basis; Tax war among the Brazilian States legality li of the tax incentives i granted by such States; State Tax Package possibility to negotiate a package of tax incentives with the State government upon the installation of the company in that State; Free Trade Zones (i.e. Manaus) goods acquired in these free trade zones do have tax exemption for ICMS; and Exports tax exemption for ICMS. PwC 29

30 Tax Incentives/Benefits applicable in Brazil Municipal Level ISS rate reduction (5 to 2%) lower rates available in Municipalities located close to large centers in order to attract t service providers; Municipal Tax Package possibility to negotiate a package of tax incentives with the municipal government upon the installation of the company in the corresponding municipality; Exports tax exemption for ISS; and Macaé Municipality reduces in 50% the ISS rate for services provided to Petrobras, limited to 2%. PwC 30

31 Section 3 Double Tax Convention Brazil - Norway PwC 31

32 Double Tax Convention Brazil - Norway Income Article of the Double Tax Convention Usual Brazilian withholding rate Treaty rate Dividends Article 10 Exempt (1) 15% - obligation to grant tax credit Interests Article 11 15% 0% if loans and credits granted by the Norwegian Government 15% in all other cases obligation to grant tax credit Royalties Article 12 15% 25% if royalties paid for the use of a trade mark, etc 15% in all other cases (also ICS equipment, but special case Norway) Obligation to grant tax credit Capital gains Article 13 15% May be taxed in both countries - obligation to grant tax credit (2) Other income Article 7 (3) and 22 15%, 25% Income not mentioned also taxable in Brazil (1) Dividends from profits as of Dec/96 are not subject to WHT in Brazil) (2) Capital gain in the sale of BrazilCo. shares by Norwegian parent - withholding tax levied at 15% in Brazil (3) Non distributed profits may not be taxed in the other State PwC 32

33 Section 4 Taxation on import PwC 33

34 Taxation on import of assets and services Imports of Assets Tax event materialized at the customs clearance Imports of used equipment highly regulated Need of Import License when import tax benefits apply High bureaucracy for obtaining i licenses and permits (Health, Environment, etc) Customs regulation not standardized Poor Infra-Structure (port inefficiency; quality of roads, etc) Imports of Services Services imported by Brazilian companies are also subject to taxation on imports PwC 34

35 Taxation on import of services With gross-up Without gross-up Service payment Norway Co Service IRRF (15%) (on 125) (on 100) 18,75 15 ISS (5%) (on 125) Net remitted value (on 100) 6, Payment Brazil Co CIDE (10%) COFINS / PIS(*) (9.25%) (Approx.) 13 (Approx.) IOF (0.38%) Total cost for Brazilian company (approx.) (approx.) (*) value of the tax base includes the own PwC Page 35 PIS/CONFINS and the ISS

36 Section 5 REPETRO regime PwC 36

37 REPETRO Regime REPETRO provides three special tax regimes to the O&G companies: Temporary Admission Regime - full suspension of federal taxes (II, IPI, PIS-Importation I ti and COFINS-Importation) I ti levied on the items imported in a temporary basis Drawback Regime - full suspension of federal taxes levied on the items imported to be used in the asset imported under the temporary admission regime Symbolic Exportation Regime equalizes the tax treatment applied to the goods imported under REPETRO to the tax treatment applied to the goods acquired in the Brazilian market (full suspension of federal taxes) Valid up to December 31, PwC 37

38 REPETRO Regime Temporary Admission E&P Company Rental of Assets in Temporary Basis Customs Clearance Payment Hard-currency Purchaser Sale of Goods Brazilian Producer Sale of goods Delivered in Brazil Brazil Overseas PwC Page 38

39 REPETRO Regime REPETRO special regime is granted to the Brazilian E&P companies Some of the assets that may be subject to Repetro are: Platforms used in the exploration, production and production phases; Christmas trees; Sub-sea equipment; Support vessels. Assets must be rented or chartered from a foreign entity to the Brazilian E&P companies (or by the Brazilian service provider to the E&P companies) PwC 39

40 REPETRO Regime Convention 130/07 expands REPETRO benefits (federal regime) to encompass the state ICMS tax For importation ti of goods to be used in the exploration phase: each State can choose between granting ICMS exemption or reduction of the ICMS due to 1.5% (e.g., Rio de Janeiro State chose exemption); For importation of goods to be used in the development/production phases: ICMS at 3%, without credits; or ICMS at 7.5%, with credits. PwC 40

41 High tax burden on Importation of Services and Goods Taxes levied on importation of services and goods Tangible Imported Import Duty II 15.00% IPI 8.00% 9.20 ICMS 19.00% Intangible Imported ISS 5.00% 6.25 PIS/COFINS 9.25% WHT 15% CIDE 10% 10.0 IOF 0.38% Total Tax Burden without REPETRO - $ % 47.97% PwC 41

42 High tax burden on Importation of Services and Goods Taxes levied on importation of services and goods Import Duty II 15.00% IPI 8.00% Tangible Imported ICMS 3% 3.00 Intangible Imported ISS 5.00% 6.25 PIS/COFINS 9.25% WHT 15% CIDE 10% 10.0 IOF 0.38% Total Tax Burden with REPETRO - $ % 47.97% PwC 42

43 Section 6 Specific regulatory & Tax Issues for Vessel Activities in Brazil PwC 43

44 Regulatory constraints Regulatory bodies: ANTAQ and the Brazilian Navy ANTAQ regulates: - Long course navigation; - Coast navigation; - Port and maritime support navigation; - Dredging navigation; - Inland navigation Brazilian Navy regulates all navigtion activities not on the scope of ANTAQ PwC 44

45 Regulatory constraints ANTAQ Foreign shipping companies (FSC) long course navigation Long course navigation is allowed to FSC if the cargo is not deemed d as exclusively l carried by Brazilian Shipping i Companies (EBN) It is not required previous authorization from ANTAQ for chartering EBN or FSP in case of cargo not restricted to EBN Authorization is required in case EBN charter in FSC for transportation of cargo restricted to EBN Exceptions: Public interest t Brazilian vessels are not available Transport of oil, as far as ANTAQ recognizes the lack of capacity of the EBN PwC 45

46 Regulatory constraints ANTAQ (cont.) Foreign shipping companies (FSC) coastal navigation Additional restriction to coastal, domestic inland and port or maritime support navigation: foreign vessels have to be chartered by EBN: Subject to both prior authorization by ANTAQ and non-availability of similar vessels with Brazilian flag; No authorization required to EBN when: Brazilian-flag vessel; Foreign vessel under bareboat charter, with suspension spension of the flag of the country of origin, for coastal, domestic inland and maritime support navigation, limited to twice the gross tonnage of similar vessels ordered to a Brazilian shipyard. Exceptions: Public interest; Brazilian vessels are not available PwC 46

47 Regulatory constraints ANTAQ (cont.) Foreign shipping companies (FSC) Right of refuse The EBN can claim before ANTAQ the bock of an authorization granted to FSC in case it is proved that t the EBN has capacity to attend the demand for the charter of a FSC in similar conditions ANTAQ has the discretionary right to decide on this matter. PwC 47

48 Taxes on charter payments Taxation on charters: no specific tax system A regular charter by a EBN will be subject to the following taxes: Corporate income taxes: 34% (on taxable income); PIS and COFINS: 9.25% (on monthly gross turnover); AFRMM: 25% (on freight value, including port expenses); ISS: 5%. ISS Which Municipality is entitled to collect the tax municipality? - Company s headquarters vs. where the service is rendered Services provided offshore PwC 48

49 Relevant tax issues on Charter Activities REPETRO In the last months, federal tax authorities in Rio de Janeiro were restrictive ti on granting the REPETRO regime to the import of vessels under time charters; Some players chose to perform a regular temporary admission regime, with payment of 1% of the taxes due on the importation per each month the vessel stayed in the Brazilian territory; Rio de Janeiro does not allow regular temporary admission for importations from a controlling or affiliate company, which would then expose Vessel companies to paying 19% ICMS on each transaction; Recent development: Federal Decree clearly stated that the REPETRO regime encompasses time charter operations PwC 49

50 Relevant tax issues on Charter Activities Transfer pricing on charters (EBN and FSC as related parties) Pros Cons Issues PIC Straightforward method low tax risk May jeopardize the use of Brazilian TP as tax planning Lack of price parameter: May be hard to build a defense file PRL May provide flexibility for Complex calculation PRL was designed for the tax planning Profit margin: 20% or 60%? manufacturing industry CPL May provide flexibility for Production cost of the charter CPL could be used if the tax planning agreement from an related party is a mere intermediary entity may be intermediary entity? questioned. Moderate tax risk PwC 50

51 Relevant tax risks on Charter Activities Price split in Charter and Service Agreements: Usually most of the price is paid to a legal entity offshore for the bareboat charter and only a reduced percentage to the Brazilian company that operates and supports the vessel (Affiliated companies), although this structure is being disputed by the Federal tax authorities The price allocated to the service provider usually does not cover its local costs There is no specific percentage determined by the tax law the margin should be enough for the service provider to make reasonable profit in Brazil PwC 51

52 Relevant tax risks on Charter Activities (cont.) Price split in Charter and Service Agreements: Three major risks have been identified: - Values remitted from the offshore entity to provide the necessary funds to its affiliated in Brazil (usually as equity) may be deemed as income of the Brazilian company (some assessments have been issued by the tax authorities); or - Tax authorities may disregard the Charter Agreement and consider that the whole agreement should be taxed as services by the Brazilian entity; or - Tax authorities may consider that the offshore company has a permanent establishment (PE) in Brazil and tax the profits originated in Brazil. PwC 52

53 Relevant tax risks on Charter Activities (cont.) WHT tax exemption on charter payments: Payments, credits or remittances made by a Brazilian tax resident to an individual id or legal l entity resident or domiciled il d abroad related to charters agreements of vessels are subject to 0% of WHT, except when the beneficiary is located in a tax heaven country; Taxpayers Council claim that the platforms do not qualify as vessels WHT 0% rate would not apply; Administrative decision subject to Court Review. 1st degree decision favorable to the taxpayer, maintaining the 0% WHT. PwC 53

54 Section 7 Individual s taxation PwC 54

55 Immigration Brazilian crew requirements Type of carrier/ Operation above: Marine support Exploration and prospecting Cabotage 90 days 1/3-1/5 180 days 1/2 1/5 1/3 360 days 2/3 1/3-720 days - 2/3 - PwC 55

56 Individual s taxation Work permits for crew and administrative personnel a) Permanent visa Mandatory for foreign individuals who will hold decision-making position in the Brazilian entity. b) Temporary work permit visa (type V) with employment contract in Brazil Maximum validity of 2 years and extendable. c) Temporary work permit visa (type V) without employment contract in Brazil Technology transfer or technical service agreements (1 year extendable) or short-term technical assistance to Brazilian companies (30 or 90 days); Sea crew of foreign carrier/ship or platform (2 years); 100% of the remuneration must be paid by the foreign entity. PwC 56

57 Individual s taxation (cont.) Visas under which employment is forbidden Temporary Type II (Business) - Can stay in the Country for 180 days within the calendar year, but must leave every 90 days; Tourist No visa requirement Sea Employees carrying Seaman s book ( laissez-passer ) on long term trips between foreign and Brazilian ports; on 30 days trip on worldwide navigation (cabotage) freightage ships. Requirements upon arrival in Brazil: RNE and CPF PwC 57

58 Individual s taxation (cont.) Residency rules for foreigners Brazilian residency depends on the type of visa held and on the physical presence in the country: As of the date of arrival: Holders of permanent visa; and Holders of temporary visas under an employment contract with a Brazilian a entity ty After 183 days: all other temporary visa holders PwC 58

59 Individual s taxation (cont.) Individual s filing obligations in Brazil Monthly income tax payments: Foreign-sourced income ( carnê-leão ); Capital gains (e.g., disposal of real estate); Variable income Annual Income Tax Return (due on April); Brazilian Central Bank Reporting Exit Procedures (Communication of Permanent Departure, Exit Income Tax Return and Tax Clearance Certificate Request) PwC 59

60 Section 8 Tax planning opportunities PwC 60

61 Background and limitations Please note that the strategies present herein are in a draft form and further development of these strategies depend on discussions and negotiation with and by the parties evolved This document is proposed to provide you with a general overview of the possible structures that can be implemented to reduce the tax burden on specific transactions and should be further developed and discussed with PwC local offices It goes without saying that these structures should be fine tuned based on the actual facts and circumstances PwC 61

62 Brazil planning interest on net equity Instead of paying normal dividends it could be envisaged to pay interest on net equity. Interest on net equity is normally deductible at 34% in Brazil and qualified as a dividend by the receiving country (paid out of earnings) Withholding tax 15% Is it possible to argue that interest on net equity is treated as a dividend for Norwegian purposes? Paragraph 4 of article 10 and paragraph 4 of article 11 both of Brazil/Norway tax treaty. Interest on net equity Norway Co Brazil Co PwC 62

63 Brazil planning goodwill amortization through downstream merger Set up of a holding company in Brazil by which target is purchased. The premium (goodwill) could subsequently be amortized for corporate income tax purposes in case of a downstream merger. 1. purchase price for Target shares Seller Buyer 1. Incorporation of HoldingCo Proper implementation planning and documentation is required to avoid questioning i by the tax authorities. Target Target 2.Downstream merger PwC 63

64 Brazil planning - leasing Lease structure under which the ownership of the asset is kept offshore. If structured correctly the Dutch entity should be able to claim for the so called tax sparing credit, basically reducing the effective tax rate to zero. Lease payments should be normally deductible in Brazil. royalty payment royalty payment NorwayCo DutchCo operational lease operational lease BrazilCo PwC 64

65 Thank you! This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it [insert legal name of the PwC firm]. All rights reserved. In this document, PwC refers to [insert legal name of the PwC firm] which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC