In the beginning of October, the Brazilian Federal Revenue Service issued Normative Instruction No. 1.658/16, which amended the list of tax havens introduced in 2010 by Normative Instruction No. 1.037/10. Among the modifications brought, we emphasize the inclusion of Ireland as a tax haven and of the Republic of Austria among the so-called countries with 'privileged tax regime'.
The change of treatment for Ireland entails, for example, increased tax withholding for international remittances to taxpayers in that country, as well as application of transfer pricing and thin capitalization rules. This impact was more evident and widely reported with respect to airlines, which often transfer funds to Ireland due to aircraft lease agreements. Given that such agreements often provide for the transfer of amounts net of taxes, the additional tax burden will be borne by Brazilian companies.
Similarly, the inclusion of Austria as 'privileged tax regime', applicable to companies incorporated as 'holding company' in that country, should impact the many multinational companies with operations in Brazil using the structure of Austrian holding companies to benefit from the treaty between said countries.
The inclusion of Ireland in the list of tax havens was somewhat expected, given that there is currently substantial focus on that jurisdiction, including by European tax authorities.
The inclusion of Austria in the list of countries with so-called 'privileged tax regime', in turn, draws attention, mainly because it is a country with which Brazil has a Treaty for the Avoidance of Double Taxation. Although the Brazilian Federal Revenue Service is not legally prohibited from determining whether or not a certain jurisdiction has a privileged tax regime, there was an expectation that the existence of a Treaty would prevent such inclusion, which proved not to be true.
It is evident, in this context, that all jurisdictions may at any time be considered tax havens by Brazilian tax authorities, and there is no guarantee of stability or differentiated treatment. This instability should be taken into consideration by individuals and companies in order to structure their activities and investments, always taking into account in business plans the risk of reclassification of jurisdictions and counterparts abroad.
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