Brazil: Proposals include tax on bank withdrawals, reduced export credits

Brazil: Tax on bank withdrawals, reduced export credits

A “tax package” has been proposed by the Ministry of Finance with a goal of improving the state budget. The measures in the proposed tax package generally would increase the tax burden for Brazilian resident or local operations, and also could be expected to affect the tax burden of multinational companies with investments in Brazil.

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Some of the measures have already been formalized and are pending approval, amendment or rejection by the Congress. Others, however, are still being drafted or finalized.

Proposals in tax package

Among the proposals in the tax package are the following measures:

  • The “temporary contribution on fiscal operations” (CPMF), that was effective from 1997 to 2007 and that applied on most withdrawals from bank accounts at general rate of 0.38% would be reinstated. As proposed, it would be imposed at a rate of 0.20% over a period of four years (but some officials advocate returning to the rate of 0.38%). A bill for the reinstatement of the CPMF has been already presented to the Congress. 
  • New progressive tax rates would apply on capital gains realized by individual taxpayers. 
  • Companies that produce and export goods manufactured in Brazil currently can request a credit, ranging from 0.1% to 3% of the revenue earned from the exported goods. A temporary reduction of the rate of REINTEGRA (the special regime for the “reinstatement of taxes” for exporters) would provide that tax refunds granted to export companies would be adjusted, with the rates to be phased in to provide a 0.1% tax refund in 2016, a 1% tax refund in 2017, a 2% tax refund in 2018, and a 3% tax refund in 2019.
  • The chemical industry in Brazil currently benefits from a reduction of the rate of two social contributions—PIS (Programa de Integração Social) and COFINS (Contribuição para o Financiamento da Seguridade Social)—with respect to the acquisition of raw material and certain investments. The rate of PIS/COFINS is reduced to 1% in some instances. A proposal in the tax package would cut, by half (50%) these rate reductions in 2016 and phase out the rate reductions completely in 2017. 
  • Under current law, Brazilian subsidiaries may pay interest on net equity, as well as dividends, to shareholders. From a tax perspective, this payment has a hybrid nature—it is a remuneration to shareholders, but is treated as a financial expense for tax purposes, and is thereby deductible for corporate income tax purposes. Interest on equity currently is subject to withholding tax, at a rate of 15%. The tax package proposes an increase in the rate of withholding tax, to 18%, among other changes to this regime.

 

Read an October 2015 report (English) prepared by the KPMG member firm in Brazil: Introduction of tax and expense cutting measures

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