U.S. Brazilian subs dealing with BEPS Action 13
On 12/28/2016, the Brazilian Federal Revenue enacted Regulation #1.681 introducing the rules on the Country-by-Country (CbC) Reporting standard under the Base Erosion and Profit Shifting (BEPS) Action 13. Brazil was one of the first G-20 to enact rules applicable to FY2016. Information was required to be reported in the (ECF) electronic tax returns transmitted until 7/31/2017.
Published on 05/01/2018
The CbC reporting is an annual compliance obligation if tax resident companies are the final controlling entities of the multinational group. They are exempt if the multinational group’s consolidated revenue for the fiscal year prior to the CbC filing is not greater than BRL2.260 billions (if the final controlling entity is Brazilian), or EUR750 millions (or equivalent amount in the currency the final controlling entity’s jurisdiction based on the spot FX rate of 1/31/2015.
The Brazilian company must check the box to inform whether it is the final controlling entity or the substitute entity; if not one of these two, it must identify the company and jurisdiction of the CbC filing entity. However, even if not the final controlling entity, the Brazilian company will prepare the CbC reporting if one of the following situations take place: (i) the group’s final controlling entity is not required to deliver the CbC report in its own jurisdiction; (ii) the foreign jurisdiction of the final controlling entity enters into Competent Authority Agreement with Brazil, but it is not valid until the deadline for the filing of the CbC report; or (iii) there is a systemic failure at the jurisdiction of the controlling entity.
Now even if one of the situations above takes place, the Brazilian non-final controlling entity will not prepare the CbC report if the following conditions are met on a cumulative basis: (i) the multinational group indicates a substitute entity to file CbC, which notifies its tax jurisdiction that is responsible for the CbC report (the Brazilian Federal Revenue must be notified as well), (ii) the tax jurisdiction of the substitute entity requires the filing of CbC, (iii) the substitute entity files the CbC report in its tax jurisdiction until the 12th month of the last fiscal year of the return of the group, and (iv) there is no formal notification of systemic failure.
For FY2016 only, if a Brazilian resident entity is not the final controlling entity of the group and there is no indication of a substitute entity, the Brazilian Federal Revenue will accept the indication of the final controlling entity from a non-CAA jurisdiction.
 Systemic failure refers to a situation where a given jurisdiction has a CCA with Brazil but suspended the automatic exchange of information for reasons not provided in the agreement or failed consistently to automatically provide to Brazil CbC reports of multinational groups with at least one Brazilian resident company.
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