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By Ed Taylor
Sept. 16 — Brazil's federal tax service surprised multinational companies and attorneys by placing Ireland on its list of tax havens.
As a result of the tax department's definition of Ireland as a “fiscal paradise,” remittances to that country by Brazilian companies will now be subject to a 25 percent Brazilian tax, instead of the normal rate of 15 percent. “Fiscal paradise” is a category that includes countries that are tax free, that have income taxes of less than 20 percent or that hide banking or trade information.
In the case of Ireland, tax officials noted that the country's income tax rate is less than 20 percent. Brazil is one of the countries to label Ireland a tax haven.
“Ireland has been questioned on its regime since 2009, but this measure came as a surprise,” said attorney Mauricio Salim of the Rio de Janeiro-based law firm Azevedo Sette Advogados.
The Sept. 15 decision came in Normative Instruction 1658/2016. Brazil also listed Austria as a privileged tax regime that doesn't require companies to make their corporate structure public.
The decision to name Ireland a tax haven came as a blow to Brazil's commercial airlines, which lease airplanes from firms registered in Ireland.
“This measure will have a devastating impact on the airlines because 55 percent to 60 percent of their fleet, some 300 planes, are leased in Ireland,” said Eduardo Sanovicz, president of the Brazilian Association of Airlines at a Sept. 15 news conference.
Sanovicz estimated that the higher taxation will add $300 million a year to the operating costs of the airlines at a time when Brazil is in a two-year recession and the airlines are losing money.
“The companies don't have the slightest financial condition to face this extra cost today. We are in the 13th consecutive month of falling sales for the sector and raising air fares is unthinkable,” he said.
He said his association will ask the tax department for more time to reorganize before applying the higher taxation.
Also affected by the definition of Ireland as a tax haven is Brazil's JBS S.A., the world's largest meat processing firm. The company is currently involved in a restructuring that was expected to make Ireland its new corporate headquarters.
But JBS issued an announcement that said the company will instead locate its headquarters in London.
“Companies will have to rethink their tax planning,” said attorney Veronica Melo of Rio-based firm Vinhas e Redenschi Advogados in a Sept. 16 e-mail to Bloomberg BNA. “The government has sent a clear message through this measure that it intends to squeeze the options abroad of Brazilian firms.”
She added that Brazilian companies with subsidiaries in Ireland will no longer be able to include the results of their Irish units when calculating total foreign earnings or losses. Subsidiaries located in tax havens can't be included in the consolidation of foreign results.
The concept of a “privileged fiscal regime” being applied to Austria includes countries that don't require companies to make public their corporate structure, including a breakdown of ownership.
The Sept. 15 tax department instruction stated that companies setting up holdings in Austria will have to demonstrate economic activity and “appropriate operational capacity” or face heavy taxation.
The goal, it said, is to prevent the creation of shell companies solely for tax purposes.
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Normative Instruction 1658/2016 is at http://src.bna.com/iFc.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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