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Ireland Becomes a Tax Haven for Brazilian Tax Purposes

Posted on the 22 November 2016 by Angelicolaw @AngelicoLaw

Ireland’s cold and rainy climate does not bring to mind any images of paradise. Yet from the standpoint of Brazilian tax authorities, the island country in the North Atlantic is a paradise of sorts. Brazil’s tax department has defined Ireland as a “fiscal paradise,” a term used to refer to a tax haven. The classification means that Brazilian companies with business contracts in Ireland will now be subject to a higher Brazilian tax rate.

The Brazilian government maintains a list of countries it considers to be fiscal paradises to dissuade companies from moving their operations to tax havens. Among the criteria for including a country on the list are income taxes of less than 20 percent and the failure to disclose banking or securities trading information, explains Bloomberg BNA. Ireland’s tax rate falls under 20 percent. Under the tax law in Brazil, companies that make payments to entities in a fiscal paradise are subject to a 25 percent Brazilian tax instead of the normal 15 percent tax.

The designation of Ireland as a fiscal paradise started on October 1. The tax authorities also added Austria, Curaçao, and Saint Martin to its list of tax havens, according to Reuters. One industry expected to suffer from Ireland’s new classification as a tax haven is aviation. The Brazilian Association of Airlines estimates that between 55 and 60 percent of Brazil’s fleet of aircrafts is leased from Ireland. The association estimates that the higher taxes will add $300 million to airline operating costs at a time of economic weakness. The International Air Transport Association told Reuters that the tax haven decision will hurt the efforts of Brazil’s airlines to compete with airlines in Chile and Argentina.

The tax implications go beyond leasing airplanes or equipment. Companies calculate the financial performance of overseas subsidiaries in their total foreign earnings, using the losses as a way to reduce their tax burdens. Others are already making adjustments to their corporate strategies in response to the changes. Brazilian company JBS S.A., the world’s largest meat processor, was undergoing a corporate restructuring that included making Ireland its new headquarters. Following the tax haven decision, the company decided instead to move its headquarters to London. Other Brazilian companies that have business interests in Ireland now face similar decisions.

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