Brazil: Austrian holding companies identified as “privileged tax regime”

Brazil and "privileged tax regimes"

Austrian holding companies that do not have substantial economic activities have been identified as a “privileged tax regime” by Brazil. Accordingly, there are transfer pricing implications for such Austrian holding companies.

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Privileged tax regime

"Privileged tax regimes" are defined by Brazil's tax authority as certain “listed” special tax regimes, such as holding-trading structures or specific legal entity types with special shareholder features, for which tax benefits or incentives are granted under the tax law of the entity’s country of residence. Remittances made to entities operating under such "privileged tax regimes" are subject to stricter transfer pricing and thin capitalization rules in Brazil.

Provisions issued in 2010 (Normative Instruction 1,037/2010) previously listed Dutch and Danish holding companies that do not have substantial economic activities as privileged tax regimes.

In late December 2016, a new release provided certain Austrian holding companies were also to be included in the list of “privileged tax regimes.” Normative Instruction 1,658/2016 (30 December 2016) amended Normative Instruction 1,037/2010 (art. 2) to provide that Austrian holding companies that do not have substantial economic activities are to be considered to be a “privileged tax regime” for Brazilian tax purposes.

Thus, the December 2016 release aligns the rules that previously applied to Dutch and Danish holding companies to Austrian holding companies.

 

Read a January 2017 report prepared by the KPMG member firm in Brazil

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