The Brazilian tax authority issued a ruling, in which it concluded that local reinsurers are subject to corporate income tax at a rate of 45% and PIS/COFINS on gross premiums less claims paid at a rate of 4.65%. The ruling also provides that permanent establishments of foreign reinsurers are subject to the same tax rates.
Before this ruling (Solução de Consulta n. 62/2017) a representative office of an admitted insurer was subject to corporate income tax at rate of 34% on the profits generated from the services provided to the foreign reinsurer and in general was exempt from PIS/COFINS* on the service fees received from the foreign reinsurer. The representative office was not considered to be undertaking reinsurance activities, but merely representing the foreign reinsurer and undertaking local customer-related, preparatory or ancillary activities associated with the reinsurance business of the foreign reinsurer.
*These are two social contributions in Brazil—PIS (Programa de Integração Social) and COFINS (Contribuição para o Financiamento da Seguridade Social).
Prior to March 2008, only companies under the control of the federal government (Instituto Brasileiro de Resseguros - IRB) could provide reinsurance cover to Brazilian insurance companies. Beginning April 2008, the monopoly on Brazilian reinsurance activities was repealed, and the Brazilian reinsurance market was opened to companies other than IRB, including foreign companies. As such, reinsurance companies have been able to provide reinsurance cover to Brazilian insurance companies as one of the following types of reinsurer:
In general, with the 2017 tax ruling, local reinsurers are subject to corporate income tax at rate of 45% and PIS/COFINS at a rate of 4.65% on gross premiums less claims paid. In the tax ruling, the Brazilian tax authorities asserted a position that the activities of the representative offices are not merely representing the foreign reinsurer at SUSEP; rather, undertaking local customer-related, preparatory or ancillary activities associated with the reinsurance as the reinsurer’s local representative provides sufficient authority to conclude contracts with local insurers/reinsurers on behalf of the foreign reinsurer. Accordingly, it is the position of the tax authorities that a Brazilian permanent establishment (PE) of the foreign reinsurer is created by the activities of the local representative on behalf of the foreign reinsurer and as such, the reinsurance business profits attributable to this PE are to be subject to tax on the same basis as local reinsurers.
Read a 2017 report prepared by the KPMG member firm in Brazil
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