For Brazilians with offshore companies, bank accounts or trusts, a new international fiscal information exchange agreement is about to make life difficult. The agreement, which will go into effect in 2018, will allow the Receita Federal (Brazilian IRS) to monitor the financial activities of Brazilians abroad. Information will be reported on both companies and private citizens.
One of the goals of the agreement is to prevent tax dodging tactics where Brazilian companies move their headquarters offshore to reduce or even eliminate tax collection in Brazil. The current agreement, legalized within the Convention on Mutual Administrative Assistance in Tax Matters, is represented by 100 countries. However, there’s an ongoing effort to include more countries, effectively making it harder for Brazilian companies to hide their revenues and avoid paying taxes.
But Brazil’s focus is not just on companies. Receita Federal Undersecretary Francisco Assis de Oliveira Júnior noted that private citizens hold approximately 400 billion reals (about 130 billion USD) in undeclared foreign accounts. In 2016, about 170 billion reals were “regulated” through the government’s fiscal repatriation initiative.
Another new program known as DPP (country-by-country declaration) will require companies to file a declaration to include global income, tax payments, and pricing information. The declaration is specific to multinationals with total revenues that exceed 2.26 billion reals (about 72 million USD). It is estimated that this new declaration will only affect about 50 Brazilian multinationals. Notwithstanding, these companies will certainly face increased difficulty in terms of tax planning.
For foreigners, Brazil’s eFinanceira program already tracks certain banking and tax information. The system receives and archives financial transactions and tax information on non-residents within Brazil’s borders and reports it to the Receita Federal. The next step will be to identify and report the residences of account holders.
The information exchanged between Brazil and the countries in the fiscal information exchange agreement may also be retroactive. This means that unreported offshore fiscal records before 2018 could be reported to the Receita Federal. Though information is already being gathered, the process of fiscal reporting is slated to become fully automated by 2018 through programs implemented by the Common Reporting Standard (CRS), also known as the Standard for Automatic Exchange of Financial Account Information.
