TAX NEWS - 2010

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Brazil Tax: Black and gray lists revised

The Brazilian tax authorities published guidance in the Official Gazette on 24/25 June 2010 (Normative Ruling (NR) No. 1,045/2010, Executive Declaratory Act (ADE) Nos. 10 and 11) that makes changes to the lists of low tax jurisdictions and privileged tax regimes announced on 7 June (Normative Ruling No. 1,037/2010). Specifically, changes are made that affect the "gray list" status of holding companies in Denmark and the Netherlands and the "black list" status of Switzerland. The NR introduces also a new procedure, whereby countries that are deemed to be low tax jurisdictions (black list) or privileged tax regimes (gray list) may request that their inclusion on the list be reviewed by the Brazilian government.

Under the new NR, a holding company incorporated in Denmark or the Netherlands will be considered to benefit from a privileged tax regime (and thus be included on the gray list) only if the holding company does not engage in "substantial economic activities." Neither the law nor the NR specifically define "substantial economic activities" or "holding regime," so until further guidance is issued the scope of these concepts remains unclear.

Although the gray list specifies tax regimes in nine countries, only Denmark and the Netherlands now benefit from a substantial economic activity safe harbor. There is no indication in the NR whether the safe harbor also applies to holding companies incorporated in the other jurisdictions whose regimes are characterized as privileged tax regimes (i.e. Iceland, Hungary, Luxembourg, Malta, Spain, the U.S. (LLCs) and Uruguay). Those regimes remain listed as privileged tax regimes in general. However, the Brazilian tax authorities have "temporarily" suspended the tax effects of the gray list for the Netherlands as a  privileged tax regime through the issuance of ADE No. 10, after a formal request by the Dutch government (no ADE was issued for Denmark). The effects of the black list are suspended for Switzerland through ADE No. 11, after a formal review request was filed by the Swiss government.

ADEs Nos. 10 and 11 are the Brazilian government's response to the reaction of affected countries to the issuance of the black and gray lists. The ADEs also may imply that other affected countries could follow the same procedure.

Final decisions relating to the revision requests will be formalized through an ADE to be issued by the Brazilian Commissioner of the tax authorities and duly published in the Official Gazette. There is no indication as to how long the revision process could take.


The issuance of the new black and gray lists on 7 June has created considerable debate in Brazil's tax community, especially as to whether the lists should be interpreted as being exhaustive or merely illustrative and, therefore, whether other jurisdictions or holding regimes will be eventually included on the lists.

As expected, some political pressure has been exerted by foreign governments whose tax regimes are included on the lists, in particular, those that have concluded a tax treaty and have substantial economic relationships with Brazil. Other affected countries potentially may follow suit.

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