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Never has your tax and financial information been so tied up.

Decree # 9,969/2019, published on August 9, 2019, enacted the Agreement between the Governments of Brazil and Jersey for the Exchange of Information on Tax Matters, signed in London on 01/28/2013. The Agreement provides, among other provisions, that the Contracting Parties will provide mutual assistance through the exchange of information that may be relevant to administer or enforce their domestic laws concerning the taxes targeted by the Agreement.

But, what does this have to do with you or your company, which are in Brazil but have no Jersey operations?

Jersey is just one more of the jurisdictions that Brazil has entered into this type of agreement. In 2018 and 2019 alone, similar agreements were enacted with Argentina, Switzerland, Great Britain and Northern Ireland [1], and it does not stop there. According to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, whose report was released in July 2018, with respect to Exchange of Information on Request (EOIR), Brazil was classified based on the first round of assessments as "Adequate to a Large Extent", having signed Conventions on Mutual Administrative Assistance in Tax Matters with more than 100 jurisdictions. [2]


That's right, Brazil is part of a group of 100 jurisdictions committed, before the G20 and the Global Forum on Transparency and Exchange of Information for Tax Purposes, to carry out the automatic exchange of financial information according to the Common Reporting Standard (CRS). To this end, there are already the e-Financeira and the Country by Country Reporting (DPP), in addition to the information generated by the Transfer Pricing rules, the obligation to inform the final beneficiary under the CNPJ rules and the Declaration of Brazilian Capitals Abroad before the Central Bank (CBE) [3]. Furthermore, based on the Agreements, the Internal Revenue Service will be able to request information about Brazilian companies and citizens that maintain activities in any countries that are signatories to the Convention.


According to the Internal Revenue Service, On 11/27/2018, the International Affairs Division (Disin) of the General Coordination of Programming and Studies (Copes) began sharing the Country-to-Country Declaration. The information for calendar year 2016 is being shared between Brazil and 38 jurisdictions. For the calendar year 2017, by 11/30/2018, Brazil already had 55 partner countries for the exchange of the declaration, and sharing is expected to begin in March 2019. [4] To have an idea, the number of jurisdictions with which Brazil already shares tax information (55), is almost 70% greater than the number of countries with which the country maintains an agreement to avoid double taxation, in force (34).

And why does this make so much sense to the IRS?

Among other reasons, because a 2014 study by the international group Tax Justice Network pointed out that Brazil is the country with the second highest tax evasion rate, second only to Russia [5]. And to further surround the issue, in 2017, IN RFB # 1,772/17 changed the internal rules for the so-called Controlled Foreign Company - CFC, to extend the use of electronic process for purposes of delivering bookkeeping, in the event of consolidation of investments in a country with which Brazil does not maintain a specific clause for the exchange of information for tax purposes.


That is, if there is an agreement, the exchange of information is automatic. If there is no agreement, there is a specific accessory obligation that requires the provision of information, electronically. In times of BEPS, the practice of non-disclosure of information by some countries may have their days counted.

But, which BEPS Actions can be most directly related to the Conventions for exchange of tax information between countries?

From the 15 BEPS Actions, the following can be mentioned: [6]


Action 3 - Controlled Foreign Corporation (CFC): Reduce the incentive for taxpayers to transfer income from a market country to foreign subsidiaries in a low-tax jurisdiction. The recommendations describe approaches for assigning certain categories of foreign company income to the shareholder(s) in order to combat offshore structures that transfer income from the shareholder's jurisdiction.


Action 5 - Harmful Tax Practices: Combat harmful tax practices with a focus on improving transparency. It is one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review to ensure timely and accurate implementation and thus safeguard a level playing field. All Inclusive Framework members in BEPS commit to implementing the minimum standard in Action 5 and commit to participating in peer review.


Action 6 - Prevention of Treaty Abuse: Develop model tax treaty provisions and recommendations to prevent treaty abuse. It addresses treaty abuse through new treaty provisions whose adoption is part of a minimum standard that BEPS Inclusive Framework members have agreed to implement. It also includes specific rules and recommendations to address other forms of treaty abuse and identifies tax policy considerations that jurisdictions should address before deciding to enter into a tax treaty.


Action 12 - Mandatory Disclosure Rules: Require taxpayers and advisors to disclose aggressive tax planning arrangements to the tax authorities. Provides recommendations for designing rules to require taxpayers and advisers to disclose aggressive tax planning arrangements. These recommendations seek a balance between the need for information about aggressive tax planning schemes, with the requirement that disclosure be appropriately targeted, feasible, and avoid placing undue compliance burdens on taxpayers.


Action 13 - Country-by-Country Reporting: Improve fiscal transparency with country-by-country reporting. All large multinational enterprises (MNEs) are required to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid, and economic activity among the tax jurisdictions in which it operates. This CbC report is shared with tax administrations in those jurisdictions for use in transfer pricing and BEPS risk assessments.


Action 15 - Multilateral Instrument: Implement BEPS recommendations related to tax treaties to address vulnerabilities in existing tax treaties. It offers concrete solutions for governments to close international tax treaty gaps by transposing the results of the BEPS Project into bilateral tax treaties around the world. MLI enables governments to implement agreed minimum standards to combat treaty abuse and improve dispute resolution mechanisms, providing flexibility to accommodate specific tax treaty policies.


Note: This article is informative and general in nature, and does not constitute legal advice for any specific operation or business. For any additional information, please contact us by e-mail reginaldo@rastaxlaw.adv.br


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