BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
4.2 Other Taxes, Duties, Charges or Tax Considerations Beyond withholding tax, other levies also influence loan structures. Domestic credit transactions are subject to IOF-Crédito – tax on financial operations (imposto sobre operações financeiras , or IOF) specifi- cally applied to credit transactions in Brazil – whereas cross-border inflows trigger IOF-Câmbio (a tax on financial transactions applied to foreign exchange operations), which decreases for long-term loans compared to short-term loans. Security interests must be registered in the relevant public registries, generat- ing variable filing fees. Brazil has no stamp duty. However, certain loan-relat- ed fees may – depending on their characterisation – be subject to service tax ( imposto sobre serviços , or ISS) in domestic contexts or to a contribution for intervention in the economic domain ( contribuição de intervenção no domínio econômico , or CIDE) when classified as technical services in cross-border pay- ments. Careful drafting is often used to align such fees with interest for tax purposes and avoid double taxation. Interest deductibility is subject to thin capitalisation limits and transfer pricing rules on related-party loans, requiring robust arm’s length documentation. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Foreign lenders face exposure to higher withholding if located in tax havens or jurisdictions with privileged tax regimes. They are also face exposure to thin cap- italisation limits and transfer pricing restrictions on related-party loans. In summary, the main tax concerns with foreign or non-traditional lenders are higher withholding tax rates for certain jurisdictions, limits on borrower’s deduc- tions for related-party or haven lenders, and ensuring any treaty benefits are secure. Mitigation strategies include careful choice of lending entity domicile, using intermediate vehicles or funds, contract clauses for gross-up/indemnity, and compliance with thin cap ratios. By anticipating these issues in structuring the deal, parties can often lawfully minimise the tax leak-
of lending terms to employees, work councils or such, as might exist in some EU contexts. In Brazil, even if a company has a unionised workforce or a works council, they do not have the right to be informed of financing arrangements. However, for certain financial arrangements – such as CRAs, real estate receivables certificates ( certificados de recebíveis imobiliários , or CRIs), bonds or notes – that are offered to the public, disclosure is required. By way of example, a debenture issued by a Brazilian company in a public offering must have an indenture ( escritura de emissão ) that is filed with the CVM and is publicly available. However, most loan agreements remain private. The publicity requirements are generally related to col- lateral registrations and any securities law triggered by the nature of the borrower or arrangement. Com- panies and banks value confidentiality of financing terms, so – unless there is a compelling reason to do so – they are not published. Even when disclosed, it is usually high-level information. Brazil does not have an EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system or Companies House where all loan contracts are filed. Thus, borrowers and lenders can generally assume that their contract terms will remain out of the public eye, with only the existence of the debt and security potentially discoverable by those who search registries or follow financial statements. Payments of principal are not subject to withholding tax in Brazil. Interest, default interest and fines are generally subject to decreasing withholding tax of 22.5% to 15%. The interest received by corporate lenders taxed under the lucro real (effective income) regime is not generally subject to withholding tax. However, such corporate lenders are subject to 34% total tax (25% income tax and 9% social contribution on net profit ( contribuição social sobre o lucro líquido , or CSLL)). 4. Tax 4.1 Withholding Tax
55 CHAMBERS.COM
Powered by FlippingBook