By way of its Revenue Procedure (IN) No. 1037/2010, the Brazilian Federal Revenue Service (RFB) published the new list of countries or dependencies providing favored taxation and/or under privileged tax systems.

As provided for the said Revenue Procedure, construed as countries or dependencies not imposing taxation on income or doing so at a rate lower than twenty percent (20%), or as those which domestic laws do not allow access to information concerning the ownership structure of legal entities or their shareholders’ identification are the following jurisdictions:

(i) Andorra (ii) Anguilla (iii) Antigua and Barbuda, (iv) Netherlands Antilles (v) Aruba, (vi) Ascension Island (vii) Commonwealth of the Bahamas, (viii) Bahrain, (IXI) Barbados , (x) Belize, (xi) Bermuda, (xii) Brunei, (xiii) Campione D'Italia, (xiv) Channel Islands (Alderney, Guernsey, Jersey and Sark), (xv) Cayman Islands, (xvi) Cyprus, (xvii) Singapore, (xviii) Cook Islands, (xix) The Republic of Costa Rica, (xx) Djibouti, (xxi) Dominica, (xxii) United Arab Emirates, (xxiii) Gibraltar, (xxiv) Granada, (xxv ) Hong Kong, (xxvi) Kiribati, (xxvii) Lebuan, (xxviii) Lebanon, (xxix) Liberia (xxx) Liechtenstein (xxxi) Macao, (xxxii) Madeira, (xxxiii) Maldives (xxxiv) Island of Man, (xxxv) Marshall Islands, (xxxvi) Mauritius, (xxxvii) Monaco, (xxxviii) Islands Montserrat, (xxxix) Na uru, (xl) Niue Island, (xli) Norfo lk Island, (xlii) Panama, (xliii ) Pitcairn Island, (xliv) French Polynesia, (xlv) Queshm Island (xlvi) American Samoa, (xlvii) Western Samoa, (xlviii) San Marino, (xlix) Islands of St. Helena, (l) St. Lucia, (ii) Federation of Saint Kitts and Nevis, (lii) the Island of Saint Pierre et Michelon, (liii) Saint Vincent and the Grenadines (liv) Seychelles, (lv) Salomon Islands, (lvi) St. Kitts and Nevis, (lvii) Swaziland; (lviii) Switzerland, (lix) Sultanate of Oman, (lx) Tonga, (lxi) Tristan da Cunha, (lxii) Turks and Caicos, (lxiii) Vanuatu, (lxiv) U.S. Virgin Islands, (lxv) British Virgin Islands.

IN no. 1037/2010 further encompasses the following particular cases as privileged tax systems:

• I - as regards the laws prevailing in Luxembourg, the system applicable to legal entities incorporated as a holding company;
• II - as regards the laws prevailing in Uruguay, the system applicable to legal entities incorporated as “Sociedades Financeiras de Inversão (Safis)” through December 31, 2010;
• III - as regards the laws prevailing in Denmark, the system applicable to legal entities incorporated as a holding company not engaged in a substantial economic activity;
• IV - as regards the laws prevailing in the Kingdom of the Netherlands, the system applicable to legal entities incorporated as a holding company not engaged in a substantial economic activity;
• V - as regards the laws prevailing in Iceland, the system applicable to legal entities incorporated as an International Trading Company (ITC);
• VI - as regards the laws prevailing in Hungary, the system applicable to legal entities incorporated as an offshore KFT;
• VII - as regards the laws prevailing in the United States of America, the system applicable to legal entities incorporated as a state Limited Liability Company (LLC), which ownership is represented by nonresident parties not subject to federal income tax;
• VIII - as regards the laws prevailing in Spain, the system applicable to legal entities incorporated as an Entidad de Tenencia de Valores Extranjeros (E.T.V.Es.);
• IX - as regards the laws prevailing in Malta, the system applicable to legal entities incorporated as an International Trading Company (ITC) or an International Holding Company (IHC).

The Brazilian tax legislation provides for certain rules governing transactions carried out by individuals or legal entities resident or domiciled in Brazil with any individual or legal entity resident or domiciled in these countries identified as having a favored taxation system (tax havens).

These transactions will be subject to the so-called transfer pricing rules, and may be subject to stricter limitations on deductibility of interest paid or credited (thin capitalization), as well as deductibility restrictions upon determination of the Corporate Income Tax (IRPJ) and the Social Contribution Tax on Net Profit (CSLL) bases. Furthermore, remittances of amounts paid to these countries are subject to differentiated Withholding Income Tax (IRF), which is levied at the rate of 25%.

It should also be highlighted that transactions carried out with parties resident or domiciled in Switzerland and the Kingdom of the Netherlands (Holland) are temporarily exempted from the aforementioned rules, until the respective request for review submitted by these countries is examined.

Should you need any further clarifications, please contact a lawyer practicing at Miguel Neto law firm tax department.

Faithfully yours,

Cesar Campos Cardoso
Miguel Neto Advogados Associados