The globalization and internationalization of companies are phenomena that must be considered by today’s tax administrations. In many situations, such as tax evasion, harmful tax competition and money laundering, domestic statutes seem to be ineffective in a global dimension. To cope with these issues, new forms of regulations have emerged.
In the past, fiscal policies were established in each country solely for domestic troubleshooting. With globalization and the free movement of capital, there has been a push towards the interaction between different tax systems and tax administrations.
Due to this movement, an effort in signing new international treaties, conventions, and agreements seems to be a feasible solution to adopt common and harmonized standards. Considering this scenario, one realizes the importance of supranational bodies in the study and development of tax related exchange of information (EOI) initiatives and the formulation of proposals that can be implemented jointly by the international community.
Brazil is engaged in implementing an international standard of transparency and exchange of information on tax matters through its domestic legislation and institutional framework to support EOI policies, allowing availability and access to reliable information, as well as powers to obtain it under civil, commercial, tax, regulatory, and criminal laws, where necessary.
The country continues to expand on its tools for the exchange of information, including specialized networks and infrastructure along with some new international agreements which are in varying stages of negotiation and ratification.
This article examines some relevant topics of Brazil’s legal and institutional framework with regards to tax exchange of information, such as the Common Reporting Standards, Country-by-Country Report, the Brazilian Voluntary Disclosure Program, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and other EOI agreements, as well as Brazilian Supreme Court (STF) rulings regarding bank secrecy and the rights of Brazilian taxpayers vis-à-vis EOI.
Enactment of Common Reporting Standards
The Common Reporting Standard (CRS) requires jurisdictions to obtain information from their local financial institutions and automatically exchange it with other jurisdictions periodically, in standardized data formats.
The CRS is aligned with the current international scenario, which seeks to establish efficient mechanisms for fiscal transparency and the exchange of information with the goal of curbing tax evasion, money laundering, and terrorist financing practices.
Recently, the Brazilian Revenue Service (RFB) issued Normative Ruling No. 1,680/2016, which established the CRS in the Brazilian tax regulation framework, postulating due diligence procedures that must be followed by financial institutions and other reporting entities. Compliance with Normative Ruling No. 1,680/2016 must be done by delivering certain information on financial operations of taxpayers to the Brazilian Revenue Service through the “e-Financeira” statement.
For Brazilian tax purposes, the automatic exchange of information with other jurisdictions under the CRS will take place in 2018, with data referring to year 2017.
Country-by-Country (“CbC”) reporting provides a template for Multinational Enterprises (MNEs) to annually provide Brazilian tax authorities with comprehensive data related to each tax jurisdiction in which they do business via controlled or related enterprises.
Normative Ruling No. 1,681/2016 regulates the CbC report, establishing that large multinational enterprises have to provide an annual filing breaking down key elements of their financial statements by jurisdiction, including information regarding revenue, income, taxes paid and accrued, employment, capital, retained earnings, tangible assets and company activities.
The annual filing will be submitted by completing the Fiscal Accounting Bookkeeping statement (“ECF”) which recently replaced the Brazilian Corporate Income Tax Return. ECF statement submission should be done by accessing the local Public System of Digital Bookkeeping (“Sped”) which replaced companies’ physical accounting books with digital file submission.
During 2017 the Brazilian tax authorities will collect the CbC report information for the 2016 fiscal year. This information will be exchanged with other jurisdictions from 2018 on (base-year 2016).
Brazilian Voluntary Disclosure Program
Brazilian authorities issued Law No. 13,254/2016 and Normative Rulings No. 1,627/2016 and No. 1,704/2017, which provided a special amnesty for the undeclared assets held abroad by Brazilian taxpayers (“RERCT”).
In short, the program aimed to encourage taxpayers to disclose their assets transferred or held abroad that, until that point, were not properly reported to local tax authorities. It was put in place before the country started its exchange of information protocols.
Individuals or legal entities that were residents or domiciled in Brazil on specific dates were able to enroll. Those participating in RERCT were subject to the payment of income taxes and fines in the amounts to be regularized.
Aside from tax and other regulatory penalties, the RERCT introduced an amnesty for crimes related to holding unreported assets abroad (as in tax evasion). Participation in the program was the only way to avoid criminal sanctions.
Multilateral Convention on Mutual Administrative Assistance in Tax Matters and other EOI agreements
Brazil continues to expand its network of tools for the exchange of information, and some new Tax Information Exchange Agreements (TIEA) are in various stages of negotiation and ratification.
Agreements between Brazil and the United States were locally brought into effect by Decree No. 8,003/2013 and by the Intergovernmental Agreement enacted under Decree No. 8,506/2015 in the context of the Foreign Account Tax Compliance Act (FATCA). However, agreements between Brazil and the United Kingdom, Uruguay, Bermuda, Jersey, Guernsey, The Cayman Islands and Switzerland are still pending ratification by the Brazilian Congress.
In addition, Brazilian Decree No. 105/2016 approved the Multilateral Convention on Mutual Administrative Assistance in Tax Matters signed by nations worldwide in November of 2011. The purpose of the convention, includes: (1) the exchange of information, such as: (1a) by request; (1b) automatic; (1c) spontaneous; (1d) simultaneous tax audits and (1e) tax audits abroad; (2) collection of tax credits, including precautionary measures; and (3) document notification.
The ratification of the Multilateral Convention allows Brazil to develop its network of exchange of financial and tax information to over 90 countries and therefore strengthens the fight against tax evasion and aggressive tax planning.
Brazilian Supreme Court Decision on Bank Secrecy
In early 2016, the STF overturned its historical position on the matter and ruled in favor of the constitutionality of the RFB rights to access taxpayers’ bank information without a judicial order. The decision, with binding effects for all local courts, was granted in favor of RFB and is expected to have major impacts on related tax issues, such as compliance with international tax agreements, the rules regarding the regularization of undeclared assets held abroad, the “e-Financeira” statement and the potential disclosure of banking information for states and municipalities.
As per the court’s decision, for banking information access to be granted, the following requirements must be present: (1) the adoption of system security certificates and access logs to prevent data tampering, and (2) the existence of a prior administrative proceeding that respects the due process of law.
- International Tax Agreements: Brazil is entering into international agreements and adopting policies to develop its tax transparency network. The country has already entered into agreements for the exchange of information. The Supreme Court’s decision will make it possible for Brazil to honor these international obligations. However, it is important to note that Brazil needs to reconcile compliance with these international duties regarding Brazilian taxpayers’ Constitutional rights and within the grounds presented in the Supreme Court ruling;
2. e-Financeira: The Brazilian tax administration issued the Normative Ruling No. 1,571/2015, which established a mandatory bi-annual reporting obligation, under which financial institutions must deliver certain information on financial operations to the RFB by presenting the e-Financeira statement. This regulation assumes the automatic disclosure of banking information from taxpayers to the RFB and it will be the means by which the Brazilian tax administration will report information to the tax authorities of other countries. However, as mentioned above, the recent Supreme Court decision postulates the need of a prior administrative proceeding including the due process of law, in order to allow the disclosure of banking information from taxpayers. In this sense, it is possible that the Supreme Court’s grounds hinders compliance with this new obligation;
3. Brazilian Voluntary Disclosure Program: The program is important for taxpayers enrolled in the disclosure program since the legislation does not prevent the exchange of information with other countries. In other words, there is no obstacle for the information provided by the taxpayer under the RERCT to be forwarded to other countries;
4. Disclosure of Banking Information to States and Municipalities: The ruling issued by the Supreme Court could also be applied to states and municipalities in order to access taxpayers banking information. In light of this possibility, the Supreme Court decision emphasized that states and municipalities should establish specific regulations for this purpose, as the federal government did in Decree No. 3.724/2001; and
5. Public Agent Liability: The Supreme Court`s decision makes it clear that the possibility of the direct access by the RFB to taxpayers’ banking records does not exempt tax authorities from complying with any other applicable legal requirements and conditions to access such data. The duty of protecting the confidentiality of tax taxpayers’ information is provided for in the CTN and non-compliance with this obligation is considered a violation of privacy, as defined by the Criminal Code of Brazil and which then allows for civil liability directed towards the offending public official. In addition, LC 105 imposes personal penalties for data mismanagement when proven that the official acted contrary to official guidance. Thus, actions by tax authorities that are taken in violation of the conditions imposed by law regarding access to banking records which are provided by financial institutions can be challenged in court.
 Decree-Law n. 486/69, article 4; National Tax Code, articles 173, 174, 195, and 197; Complementary Law n. 123/06, article 26, II; Normative Instruction RFB n. 983/09, article 27; Law n. 9.613/98.