Government taxes tax havens to offset greater income tax exemption – 04/30/2023 – Market

The government published the MP (provisional measure) that increases the exemption from Income Tax containing, as compensation, initiatives to tax income abroad of individuals residing in Brazil. The initiative also affects resources deposited in tax havens.

According to the MP, income earned from 2024 on financial investments abroad by individuals residing in the country will be taxed at rates of up to 22.5% depending on the size of the earnings.

Up to R$6,000 in annual earnings, the rate is zero. From R$6,000 to R$50,000, 15% is charged on winnings. From R$ 50,000 onwards, the percentage rises to 22.5%.

The values ​​are valid for financial applications, profits and dividends from controlled entities and assets and rights present in the so-called trusts.

A trust is a contractual entity governed by foreign law that establishes a legal relationship between the settlor (owner of the resources) the trustee (person or institution responsible for managing the resources) and the beneficiaries (one or more persons appointed by the settlor to receive the goods and rights, plus fruits).

One of the articles provides that, as of 2024, the profits of entities abroad of individuals residing in Brazil will be taxed annually when they are in a favored taxation regime or with a privileged tax regime —which encompasses a series of countries that function as tax havens, where the collection of taxes on resources is minimal.

Subsidiaries that do not significantly generate their own income from the exploration of economic activity are also included in the charge (which excludes, according to the text, items such as royalties, dividends, interest, rents and capital gains).

Entities such as investment funds and foundations are included in the changes, in which the individual holds, directly or indirectly, alone or jointly with other parties, rights that ensure preponderance in the deliberations or power to elect or dismiss the majority of its administrators.

Also included are companies in which the person owns, directly or indirectly, alone or jointly with others, more than 50% of participation in the share capital or the equivalent in obtaining resources.

According to the text, the resources will be taxed at the time of effective availability to the individual resident in Brazil, that is, when there is payment, credit, delivery, employment or remittance of profits; or even when there are any credit operations carried out with the natural person or with a person related to him (which is determined in the text by a list that includes, for example, spouse, partner or relative up to the third degree).

Individuals resident in Brazil may update the value of assets and rights abroad informed in their Income Tax adjustment declaration to the market value on December 31, 2022 and tax the difference for the acquisition cost, by IRPF, at the final rate of 10%. In this case, the tax must be paid by November 30, 2023.

Charges on tax havens were provided for in a bill sent by the then Minister Paulo Guedes (Economy) to Congress with the aim of modifying the Income Tax rules, but the section ended up being eliminated after conversations between him and parliamentarians.

At the time, Guedes even defended the removal of the section. “Ah, ‘because you have to take the offshore’ and I don’t know what. It started to complicate? Either take it away or simplify it. Take it off. We are following that rule”, he said at the time.

Later, it was revealed that Guedes himself, his wife and daughter were shareholders of an offshore company in the British Virgin Islands, known as a tax haven, according to reports published by vehicles such as Piauí magazine and El País newspaper, which participate in the International Consortium project. of Investigative Journalists (the ICIJ).

At the time, a representative of the OECD (Organization for Economic Cooperation and Development), stated that Brazil was missing the opportunity to close the fence on the use of tax havens.