Normative Instruction RFB No. 1681 (“IN 1681/2016”) established the rules for the Brazilian companies to be compliant with the Country-by-Country Regulation (“CbCR”). The CbCR shall be presented annually considering the financial results of the previous fiscal year, as part of the fiscal declaration (ECF). Such declaration should be filled in accordingly with the list of mandatory information determined by IN 1681/2016 and pursuant to RFB Normative Instruction No. 1,422, of December 19, 2013.

Multinational groups are obliged to deliver the CbCR if consolidated revenues for the fiscal year preceding the tax year of the declaration are equal to or greater than R$ 2.26 billion (or 750 million Euros, or if the local currency of the final controller of the group is equivalent to the mentioned amounts, as of January 31, 2015).

Moreover, the Brazilian subsidiary, considered substitute of the final controller, is bound to fulfill the CbCR in the following cases:

• the final controller of the multinational group is not obliged to deliver the CbCR in its jurisdiction of residence;

 

• the jurisdiction where the ultimate controller is located has signed an international agreement with Brazil, however, still not ratified by the competent authorities before the deadline for delivering the CbCR or;

 

• there has been a systemic failure of the jurisdiction of residence of the final controller of the multinational group that has been notified by the Internal Revenue Service of Brazil to the resident entity for tax purposes in Brazil.

Although exempt from submitting the CbCR, the Brazilian subsidiary will need to inform the identification and the jurisdiction of residence for tax purposes of its parent company.

The deadline for providing the information will be the date for completing the ECF. The non-submission of the CbCR expose the Brazilian subsidiary to the payment of a penalty of R$ 1,500.00 per month. Submission of an incomplete CbCR may cause to the Brazilian subsidiary a fine of 3% over the value omitted, inaccurate or incomplete.

The CbCR is the result of the BEPS Project (Base Erosion and Profit Shifting) of the OECD’s initiative to fight against the erosion of the taxable base and the transfer of profits. One of the conditions required by the project consist in sharing the documents among the countries in which the entities, members of the multinational group, are incorporated, through agreements that provide for the automatic exchange of information on tax matters, ensuring the confidentiality and security of the information transmitted.

 

For further information, please contact the tax and corporate teams of Tess Advogados.

Carlo Lorusso – clorusso@tesslaw.com

Paulo Yamaguchi – pyamaguchi@tesslaw.com