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International Tax Newsletter

International Tax Newsletter

Dutch Holding Companies are reinserted into the Brazilian list of Privileged Tax Regimes


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International Tax Newsletter

BackgroundNormative Instruction

1,037/2010 updated the list of jurisdictions considered as tax havens (article
1) and introduced a list of situations/regimes considered as “Privileged Tax
Regimes” (article 2). Holding companies located in the Netherlands
with no substantial economic activities, as amended by Normative Instruction
1,045/2010, were included under the concept of “Privileged Tax Regimes” (article 2, IV).
As allowed by the Brazilian tax legislation (Normative Instruction 1,045/2010), the Dutch Government presented a formal request to the Brazilian tax authorities with the purpose of excluding the Dutch companies from the list. Declaratory Act 10/2010 excluded such companies from the list.
Declaratory Act
3/2015Declaratory Act 3/2015, published on December 21, 2015, revoked Declaratory Act 10/2010 based on the fact that the Dutch Government was
not able to provide sufficient information to justify the revision and definitive exclusion of such companies from the list. As a consequence, the Dutch Holding Companies that do not have substantial economic activities have been re-inserted into the Brazilian list of “Privileged Tax Regime” and Normative Instruction 1,037/2010 was modified to reflect this (article 2, IV).
According to Brazilian tax legislation, the concept of Privileged Tax Regime is relevant for determining:

(i) whether or not the Transfer Pricing legislation must be applied to transactions carried out with unrelated parties;

(ii) the debt/equity ratio for the purpose of applying Brazilian thin capitalization rules; and (iii) the deductibility of expenses when the following requirements are not met, cumulatively (a) identification of the effective beneficiary; (b) demonstration of operational capacity of the foreign entity to perform the transaction; and (c) to attest, by means of documents, the payment of respective price and the receipt of goods, rights or the use of a service.

We recommend that our clients review whether the changes above will impact their taxation in Brazil and consider associated compliance requirements or appropriate reorganizations or business changes.  

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