ITSNewsalert: Disclosure of final beneficiaries in Brazilian corporate taxpayer register

On December 29, 2016, the Brazilian tax authorities issued Normative Instruction (NI) 1,684/2016 which postpones the starting date to disclose information related to final beneficiaries in the Brazilian corporate taxpayer register (“CNPJ”).

Background

In May 2016 the Brazilian tax authorities issued NI 1,634 establishing the obligation to disclose information related to final beneficiaries of Brazilian companies in the CNPJ.

According to NI 1,634, the term “final beneficiaries” refers to (i) an individual who ultimately, either directly or indirectly, holds, controls or significantly influences an entity; or (ii) an individual on whose behalf a transaction is undertaken. A shareholder is deemed to have significant influence if (i) owns more than direct or indirect 25% of the entity’s capital stock or (ii) has the ability to influence the decision-making and elect or appoint members of the entity’s management.

Please note that, among others, legal entities set up as listed companies in Brazil, or in jurisdictions which impose the public disclosure of information of relevant shareholders, as well as non-profit entities, were not required to comply with this obligation unless the entities were located in tax havens or privileged tax regimes under the Brazilian tax legislation.

The takeaway

Although the disclosure of the final beneficiaries was initially set to start on January 1, 2017, NI 1,684/2016 has postponed the general starting date to July 1, 2017. As an exception, companies registered in Brazil before July 1, 2017 will have time until December 31, 2018 to comply with the disclosure obligation (however, please note that if a Brazilian company updates its CNPJ before December 31, 2018 for any other reason, the disclosure obligation will arise at the date of such change).

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Contacts

If you would like to discuss the implications for your organisation, please contact your usual PwC adviser or:

Daniel Gremaud
PwC | Senior Partner, Tax and Legal Services
Office: +41 58 792 81 23
Mobile: +41 79 213 5459
Email
PricewaterhouseCoopers GmbH
Avenue C.-F. Ramuz 45 | Case postale | 1001 Lausanne

 

 

Grasiele Teixeira Neves
PwC | International Tax Services
Office: +41 58 792 9825
Mobile: +41 79 350 5138
Email
PricewaterhouseCoopers AG
Avenue Giuseppe-Motta 50 | Case postale | 1211 Genève 2

Brazilian interest on net equity rules remain unchanged

Brazil_IIOn 30 September 2015, the Executive Branch of the Brazilian government released a Provisional Measure 694/2015 (PM 694), which was supposed to add a new deductibility limitation for interest on net equity (INE) for Brazilian income tax and social contribution tax purposes, and which additionally sought to increase the income tax withholding rate on INE payments to non-resident shareholders.

However, due to lack of action by the Brazilian Congress to convert the provisions of PM 694 into law (in its existing form or with amendments), the PM expired as of 9 March 2016. The expiration was confirmed by a notice released by the Brazilian Senate on the same date.

Hence, as for now, the Brazilian INE rules remain unchanged. However, as it is possible that the proposed amendments will be reintroduced in a future PM, multinational companies that own Brazilian entities should continue to monitor developments related to INE payments.

 

Read more about the PM 694 in our newsletter.

 

If you´re interested in this topic or have any questions connected with it, please feel free to contact our experts:

Daniel Gremaud
Partner, Leader Tax & Legal Romandie
daniel.gremaud@ch.pwc.com
+41 58 792 81 23

Matthias Marbach
Director, Tax & Legal Services
matthias.marbach@ch.pwc.com
+41 58 792 44 76

CTR III VD

In September 2015, the modification of the Vaud income tax law (“LI”) has been voted by a large majority of the cantonal Parliament. Following said vote, two extreme left-wing parties launched a referendum against the revised bill. Last week end, the amendments of the bill have been approved by a surpringly vast majority of the voters (87% in favor of the new law).

The elements disclosed in the package that has been accepted can be summarized as follows:

1. Taxation of corporations

  • Abolishment of all privileged tax regimes granted at cantonal / communal level – i.e. mixed company tax regime as well as the holding tax status (provided in art.108, 109 LI). The abolishment of the articles will be effective as from January 1st 2019 onwards;
  • General reduction of the corporate income tax rate applicable at cantonal / communal level. The new rate will lead to a global effective tax rate (including federal, cantonal and communal levels), from January 1st 2019 onwards, of 13.79%;
  • Adaptation of the tax rates applicable to the “minimum tax” (art, 126 LI);
  • Harmonization of the capital tax. Regardless of the type of taxation applied to a company located in the canton of Vaud (art 118 LI), such entity will pay capital tax on the taxable equity at a rate of 0.06% to which communal multiplier will be applied (in general ranging from 2 to 2.5). The possibility to credit on the equity tax the income tax remains possible. This measure will enter into force from January 1st 2016 onwards.

2. Taxation of individuals

  • Rental values determination (deemed income for individuals owning real estate): modification of the lump sum deduction (increase from 20% to 30%) applicable to real estate aged over 20 years. The aim of this measure is to reduce the taxable amount resulting from owning real estate for a long period of time (measure aimed for retired persons to whom rental values represent an important income tax burden);
  • Increase of the lump sum deduction for health, life and accident insurance;

3. Taxation of individual who have the right to benefit from lump-sum taxation

Modification of the lump sum taxation principles as per the modifications voted at federal level. Such taxation principle is applied to non-Swiss resident who do not carry out any lucrative activities in Switzerland. Modifications are as follows:

  • Such regime will not be granted to persons with a Swiss passport. In the past, this was possible for a Swiss citizen to be married to a foreigner who was taking profit of this privileged tax regime and be granted with said regime. It was also possible to request such type of taxation regime for a Swiss citizen returning from abroad to Switzerland in the course of the first fiscal year following the return;
  • Requirements for the lump sum taxation will have to be met by both spouses;
  • Minimal lump sum amount to be determined as follows (maximal amount of the three values mentioned below and will be provided in art 15, al.3 LI):
    – CHF 400’000 of taxable basis;
    – 7 times the rental values of real estate owned;
    – 3 times the costs of lodging – amounts paid for living.
  • From January 1st 2016 onwards, lump sum taxation will also have to cover the wealth tax due by a lump sum taxpayer on its wealth attributable to Switzerland. In the canton of Vaud, it results in an increase of the minimal lump sum amount to CHF 415’000. If the determination as per the rental value or the lodging costs lead to a higher amount, percentage applied on such value or on such costs will be used to reflect wealth tax value in the determination of the lump sum amount.

4. Modification applicable to both corporations and individuals (admin matters only)

  • Payment of the taxes due. The system will be modified for corporations to align it on the one applied to individuals (monthly payment of corporate income tax amount – applicable for FY16 onwards);
  • Formal modifications of the Vaud tax law in order to reflect latest adjustments of the Swiss commercial code – formal requirements regarding the presentation of the financial statements of a company, etc.

5. Further modifications

The above mentioned bill does not include all elements currently under discussion at the federal level (Patent Box, Notional interest deduction, step-up mechanism). However, please note that there will be a transition clause that in case Vaud tax law has not legalized the step up, which will set up tax treatment of hidden reserves after abolishment of special regimes, or other federal tax reform elements into its Cantonal law as per 1 January 2019. Such transition clause will ensure that the introduction of the reduced tax rate and abolishment of special regimes as per 1 January 2019 in Vaud is aligned to the benefits to be introduced by federal tax reform timing wise.

A complete summary of parliamentary debates can be found on PWC newsletter.

Argentina modifies certain exchange control rules and export duties

The recently elected government of Argentina has issued the following measures related to the Argentine exchange control regime and export duties:

Exchange control regime modifications

Importations of goods and services

On December 17, 2015, the Argentine Central Bank has issued Communication ‘A’ 5850, which introduced significant modifications to the Exchange Currency Market related to payment for the import of goods and services. Payments for the import of goods on shipments dated on or after December 17 can be executed without any restrictions.

Certain public and public guaranteed debt for the import of goods dated on or before December 16, 2015, can be also paid through the Argentine exchange currency market without limitations.

For outstanding debt, a schedule has been outlined limiting the debts (from USD 2 million to USD 4 million) that each importer may pay per calendar month. Commencing June 1, 2016, there will be no limit on the amount of debt to be paid.

Payments for the import of services provided on or after December 17 can be also executed without any restrictions. Likewise, other schedule limiting the monthly payments of the outstanding debt from import of services has been outlined until June 2016.

Purchase of foreign currency by Argentine residents

Resident individuals and corporations (with certain exceptions) and local governments may access to the Exchange Currency Market to purchase foreign currency without the previously required approval of the Central Bank, for amounts not exceeding USD 2 million in the calender month. The currency must be used for certain listed payments as loans granted to non-residents or direct investments abroad by Argentine residents.

Financial debts with non-resident entities

Communication ‘A’ 5850 also provides that all financial debts incurred abroad by the financial sector, the non-financial private sector, and local governments no longer must settle the related funds through the Exchange Currency Market.

If a resident entity seeks repayment of principal or interest through the exchange currency market (i.e., the Argentinian resident needs to acquire the foreign currency via this market to repay the debt), then the funds lent by the non-resident entity must comply with the Exchange Currency Market settlement requirements.

For new debts (or renewals) incurred on or after December 17, 2015, the minimum period to retain the funds in Argentina is reduced from 365 to 120 calendar days.

The requirement to initiate a non-interest-bearing deposit amounting to 30% of the borrowed funds has been repealed.

Export duties relief

Decree 133/2015 provides a 0% tax rate for the export of most agricultural and industrial products, effective on or after December 17, 2015. Certain exceptions may apply.

For further information, please contact your PwC advisor or the contacts listed below:

Daniel Gremaud
Partner, Leader Tax & Legal Romandie
+41 58 792 8123
daniel.gremaud@ch.pwc.com

Matthias Marbach
Director, Mergers & Acquisitions Tax
+41 58 792 4476
matthias.marbach@ch.pwc.com

New TIEA signed between Switzerland and Brazil – meanwhile Dutch holding companies back on “gray list” of privileged tax regimes

TIEA_BildOn 23 November 2015, Switzerland and Brazil have signed a new tax information exchange agreement (TIEA). The new TIEA does not only foster the bilateral relationships between the two countries and ensures compliance with OECD international fiscal transparency standards, but also underlines Switzerland’s removal of the Brazilian blacklist in June 2014 permanently. Before entering into force, the TIEA however needs to be ratified by the countries’ parliaments and is subject to an optional referendum in Switzerland.

While the newly signed TIEA provides more legal and economic certainty, it may also be a first step in direction of a deeper collaboration in tax matters, particularly building a corner stone for a future double taxation treaty.

For further information regarding the aforementioned topic read our latest publication here.

Impact of the Double Tax Treaty between Switzerland and Argentina

Introduction

With the conclusion of the ratification procedure, the Double Tax Treaty (DTT) between Switzerland and Argentina for the avoidance of double taxation with respect to taxes on income and on capital, completed in Bern on 20 March 2014, will enter into force on 27 November 2015. The convention will replace the provisional convention of 1997 that has been terminated by Argentina on 16 January 2012, and therefore ends the contract-free period. The rules under the treaty will be applicable starting from 01 January 2016, with the exception of source taxation for which relief can be claimed retroactive for 2015.[1]

Brief summary of the new convention

The convention primarily provides legal certainty and aims to avoid double taxation with respect to taxes on income and capital between Switzerland and Argentina. The new rules are comparable to the original convention from 1997, with a slight deterioration in favor of Argentina. The essential aspects of the treaty in particular with respect to the source taxation of dividends, interest and royalties are outlined below.

Dividends

The provisions referring to dividend payments is in accordance with the one from the double tax convention of 1997. Article 10 paragraph 2 of the new treaty provides a limitation of the withholding tax to 10 per cent if the beneficial owner is a corporation (other than a partnership) which holds directly at least 25 per cent of the capital. In all other cases, the withholding tax is 15 per cent of the gross amount of the dividend payment, if the payment does not exceed the cumulated taxable profits of the company paying the dividends.[2] In the latter case, figure 9 letter b of the protocol provides a definitive tax of 35 per cent (so-called “Equalization Tax“) for which no relief is provided under the new convention.

Interest

Article 11 paragraph 2 of the convention provides a limitation of the withholding tax to 12 per cent of the gross amount of the interest paid (exceptions apply under paragraph 3). Switzerland generally does not levy a withholding tax on interests paid on commercial loans. Under Argentinean law however, interest payments to a foreign resident are subject to withholding tax of 15.05 to 35 per cent, depending on their nature.[3]

Royalties

Under Argentinean law, royalties paid to a foreign resident are subject to a withholding tax of on different rates, depending on their nature. According to Article 12 paragraph 2, the convention provides a limitation of the withholding tax to 3 to 15 per cent, in particular:[4]

  • (a) 3 per cent of the gross amount paid for the use of, or the right to use, news;
  • (b) 5 per cent of the gross amount paid for the use of, or the right to use, copyright of literary, dramatic, musical or other artistic work (but not including royalties in respect of motion picture films and works on film or videotape or other means of reproduction for use in connection with television);
  • (c) 10 per cent of the gross amount paid for the use of, or the right to use, industrial, commercial or scientific equipment or any patent, trade mark, design or model, plan, secret formula or process, computer software or for information concerning industrial or scientific experience including payments for the rendering of technical assistance; and
  • (d) 15 per cent of the gross amount of the royalties in all other cases.

As Switzerland does not levy any withholding tax on royalties, the provisions under paragraph 2 apply to royalty payments from Argentina to a Swiss resident only.

Capital gains

Article 13 paragraph 5 (considering the exception provided in paragraph 4) provides a limitation of the withholding tax on capital gains derived from the alienation of shares to 10 per cent if the beneficial owner directly holds at least 25 per cent of the capital and to 15 percent in all other cases (same as for dividend taxation).[5]

Further amendments

A major change compared to the previous convention of 1997, is the inclusion of article 25 with respect to the information exchange. In line with the current international standard on information exchange, the new treaty facilitates the exchange of information upon request.

Impact on Swiss corporations

Even though the new DTT does not vary significantly from the previous version of 1997, it primarily provides legal certainty for Swiss corporations with investments in Argentina. While the previous version has never been ratified and has been terminated in 2012, the newly signed treaty introduces a new legal base. From a pure cash tax perspective, the DTT does not provide better WHT rates on dividends as set forth by Argentine internal law.

However, the limitation to 10% taxation in the DTT with Switzerland concerning capital gains (M&A transaction relevant cash tax outflows which are usually burdensome as transferred from sellers to buyers or requiring the acquisition of complex intermediary structures), could open planning opportunities as Argentine internal law stipulates a taxation at 13.5% on gross sales proceed or 15% on actual capital gain.

For more information on the topic discussed above, including what it means in practice or for other tax questions, contact your local PwC engagement team or me.


[1] Staatssekretariat für internationale Finanzfragen (29.10.2015), Grünes Licht für das Inkrafttreten des DBA zwischen der Schweiz und Argentinien (https://www.admin.ch/gov/de/start/dokumentation/medienmitteilungen.msg-id-59271.html).
[2] Abkommen zwischen der Schweizerischen Eidgenossenschaft und der Republik Argentinien zur Vermeidung der Doppelbesteuerung auf dem Gebiet der Steuern vom Einkommen und vom Vermögen (DBA-AR), S. 26 (http://www.news.admin.ch/NSBSubscriber/message/attachments/36896.pdf).
[3] PwC, Worldwide Tax Summaries – Corporate Taxes 2015/16, S. 58-59, Botschaft zu einem neuen Doppelbesteuerungsabkommen zwischen der Schweiz und Argentinien, S. 8601 (https://www.admin.ch/opc/de/federal-gazette/2014/8593.pdf).
[4] DBA-AR, S. 29; http://www.news.admin.ch/NSBSubscriber/message/attachments/34166.pdf, S. 11-12.
[5] DBA-AR, S. 30-31.
Daniel Gremaud
Leader Tax & Legal Services Romandie (Western Switzerland)
PwC
Avenue C.-F. -Ramuz 45
1001 Lausanne
Tel. +41 58 792 81 23
Matthias Marbach
Director Tax & Legal Services
PwC
Birchstrasse 160
8050 Zürich
Tel. +41 58 792 44 76

Modification of the federal ordinance on the granting of federal tax holidays

In March 2015 the Federal Council published a report on the contemplated modifications of the federal ordinance on the granting of federal tax holidays in application of the new regional policy. The consultation draft of the new federal ordinance can now be commented on by interested parties until July 8, 2015; entry into force of the final version is planned for July 1, 2016.

We have set out below a summary of the most relevant aspects of the consultation draft.

A) Granting of tax holidays according to current tax practice

As part of its regional policy, the Federal Council is endeavouring to strengthen the competitiveness of certain geographical areas. Under the terms of article 12 of the Federal Law on Regional Policy, federal tax holidays can be granted to industrial companies or production-related service providers located in structurally weak geographical areas that are willing to create new jobs or to maintain existing ones.

The cantons are responsible for submitting applications for federal tax holidays in accordance with the Federal Law on Regional Policy. A tax holiday applicant may only obtain a federal tax holiday if the canton of residence has already granted a tax holiday at cantonal/municipal level. The cantonal economic development agencies provide advice about the procedure.

Under current practice, a federal tax holiday can only be granted if the cantonal tax holiday decision contains a claw-back clause. The maximum duration of the tax holiday is 10 years, usually split into a first period of 5 years that is extended for a second period of 5 years if all the tax holiday conditions are met.

Source : http://www.seco.admin.ch/themen/05116/05118/05298/index.html?lang=en

B) Proposed modifications – new federal ordinance

The purpose of the current publication is only to highlight the material and procedural amendments the Federal Council wants to implement.

The amended federal ordinance should enter into force on July 1, 2016. Until then, the current practice will remain applicable. It is also worth mentioning that the amendments proposed by the Federal Council should not have a direct formal effect on cantonal tax practices; some cantons may, however, decide to change current practice and follow the new federal rules. This will have to be monitored in due time.

a.      Regional restrictions for federal tax holidays (articles 2 and 3 of the new ordinance)

The areas in which a taxpayer could apply for a federal tax holiday were significantly restricted in 2010. Currently, approximately 633 towns are located in the regions benefitting from the tax holiday.

Based on the amended federal ordinance, tax holidays may be granted to companies located in municipalities considered to be rural centres, small or medium sized urban centres including the surrounding areas (i.e. Alternative 2 – 136 cities), or alternatively smaller and less urban areas with a central function (i.e. Alternative 4 – 157 cities).

b.      Introduction of a cap for the determination of the tax holiday

Federal tax holidays will be subject to a cap determined using a specific formula (article 11 of the new ordinance). According to the current estimates made by the Federal Council, each new job created could lead to a tax credit ranging from CHF 71,594 to CHF 143,188 per year; each job retained should lead to a tax credit ranging from CHF 35,797 to CHF 71,594 per year.

The cantons should still be able to determine the method used to fix the cap in granting tax holidays in their own right (i.e., application of the tax credit similar to the federal approach or of a percentage of exemption).

c.       Transparency of tax holidays

Once a year the State Secretariat for Economic Affairs (SECO) will publish information connected with newly granted federal tax holidays, e.g., the name of the company, its location, information on the magnitude of the cap on the tax holiday and the number of jobs to be created or saved. Nevertheless, the effective amount of the tax credit granted will not be disclosed. In principle, no information will be published in connection with cantonal tax holidays.

Only a new tax holiday granted under the amended terms of the federal ordinance will be subject to public disclosure; tax holidays granted under the current version of the federal ordinance will not be affected by this new provision.

d.      Miscellaneous

In application of the proposed federal ordinance, compliance with the conditions for the tax holiday will have to be certified by the company’s statutory auditors. This rule will only apply to the tax holidays granted by the federal authorities after the new ordinance enters into force.

Similar to current practice, provisions for a claw-back will still be included when a federal tax holiday is granted.

The conditions for granting a federal tax holiday will not be drastically modified. Here are the main conditions to be met to be granted a federal tax holiday:

(i)   The canton has agreed to grant a cantonal tax holiday to the company

(ii)   Tax holidays may be granted to newly created companies or to companies developing a new activity

(iii)   At least 20 new jobs will be created.

C) Conclusions

The tax holiday practice at federal level is clearly defined and should be seriously taken into consideration when non-Swiss entities contemplate expanding in Switzerland.

The prospect of a future decrease in cantonal tax rates within the framework of Corporate Tax Reform III creates great incentives for multinational companies.

Our tax specialists remain at your disposal should you want to discuss in detail the possibility of being granted a tax holiday according to current or future practice.

Daniel Gremaud
PwC
Avenue C.-F. Ramuz 45
Case postale, 1001 Lausanne
daniel.gremaud@ch.pwc.com
+41 58 792 81 23
Gil Walser
PwC
Avenue C.-F. Ramuz 45
Case postale, 1001 Lausanne
gil.walser@ch.pwc.com
+41 58 792 67 81