Brazil: Dutch holding companies again identified as “privileged tax regimes”

Brazil: Dutch holding companies, privileged tax regimes

Dutch holding companies have been again included on the Brazilian government’s list of “privileged tax regimes.” Accordingly, this action has implications for purposes of the transfer pricing, thin capitalization, and tax deductibility rules.

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Background

Under Brazilian tax law, the concept of “privileged tax regimes” is relevant for determining:

  • Whether Brazil’s transfer pricing rules must be applied to transactions conducted with unrelated parties
  • What is the debt/equity ratio for purposes of applying Brazilian thin capitalization rules
  • Whether expenses are deductible if: (1) the “effective beneficiary” cannot be identified; (2) the operational capacity of the foreign entity that is to perform the transaction is not proven; and (c) there is insufficient supporting documentation with respect to the payment for goods, rights or services

Dutch holding companies

Normative Instruction 1,037/2010 provided a list of jurisdictions considered to be “tax havens” (article 1), and set forth a list of situations and/or regimes considered to be “privileged tax regimes” (article 2). Holding companies located in the Netherlands with no “substantial economic activities” (as defined by Normative Instruction 1,045/2010) were included under the concept of “privileged tax regimes” (article 2, IV).

The Dutch government made a formal request of the Brazilian tax authorities, to exclude Dutch holding companies from this list of “privileged tax regimes.” This request was granted by Declaratory Act 10/2010. 

Revised position in Brazil

Declaratory Act 3/2015 (21 December 2015), revoked Declaratory Act 10/2010. This revocation was based on the fact that the Dutch government was not able to provide sufficient information to justify excluding Dutch holding companies from the list of “privileged tax regimes.”

Accordingly, Dutch holding companies that do not have substantial economic activities are again included in Brazil’s list of “privileged tax regime.” 

 

Read a December 2015 report [PDF 51 KB] prepared by the KPMG member firm in Brazil

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