Caio Caetano Luna*

Gilberto Ayres Moreira**

On June 4th, 2010, the Federal Revenue of Brazil issued Normative Ruling No. 1,037, containing a new list of countries deemed by Brazilian tax authorities to provide favorable taxation and privileged tax regimes. According to Law No. 9,430/96, tax favorable jurisdictions, also known as tax havens, are jurisdictions that exempt income or tax it at a rate inferior to 20%, or whose legislation forbids the access to information on the ownership of legal entities, among other restrictions. Privileged regimes, on their turn, are tax regimes provided to certain legal entities by countries that are not considered tax heavens.

The main novelties of the list are the inclusion of Switzerland as a tax haven, as well as the listing of the following as privileged tax regimes:

(i) Holding Companies, in Luxemburg, and International Holding Companies, in Malta;

(ii) Holding companies, as long as they have no substance, in Denmark and the Netherlands;

(iii) Investment Financial Companies (Safis), in Uruguay, incorporated until December 31, 2010;

(iv) International Trading Companies, in Iceland and Malta;

(v) Offshore KFT, in Hungary;

(vi) Limited Liability Companies composed by non-residents and not subject to federal income tax in the United States of America (especially, Delaware LLCs); and

(vii) Entidad de Tenencia de Valores Extranjeros (E.T.V.Es.), in Spain.

Transactions carried-out with tax havens and entities under privileged tax regimes are subject to a series of restrictions, such as the compulsory adoption of transfer pricing rules, regardless of relation between the parties, and thin-capitalization rules, according to the new rules set forth by Law No. 12,249/10. Most transactions with tax havens are subject to a 25% withholding tax.

Blacklisted jurisdictions may petition before the Federal Revenue of Brazil for the review of their status. The Governments of Switzerland and the Netherlands have already done so and, on June 24th, 2010, were temporarily suspended from the blacklist, until the Federal Revenue issues a final decision as to whether or not they may be removed from the list of tax heavens and privileged regimes. Consequently, while the Federal Revenue does not issue a final decision on that regard, these countries are not subject to the restrictions described in the previous paragraph.

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* Caio Caetano Luna, associate of Rolim, Godoi, Viotti & Leite Campos Advogados