Thursday, 9 February 2017

Brazil clarifies grey list status of Austrian holding companies

Brazil’s tax authorities published a normative ruling (NR) on 29 December 2016 that clarifies the conditions under which certain Austrian entities will be deemed to fall within the scope of a privileged tax regime and, therefore, be included on Brazil’s grey list (which has transfer pricing and thin capitalization consequences). Austrian entities incorporated as holding companies have been included on Brazil’s grey list since September 2016, following the issuance of NR 1,658/16.
The new NR clarifies that only Austrian entities incorporated as holding companies and that do not engage in “substantial economic activities” will be considered to be subject to a privileged tax regime. According to NR 1,658/16, a foreign holding company will be deemed to carry out substantial economic activities if it has the operating capacity to appropriately meet its corporate purposes, as evidenced by certain factors, including having a sufficient number of its own qualified employees and adequate physical premises to enable the company to manage and effectively make decisions regarding the following:

  • The carrying on of activities for the purpose of generating income from its own assets; or
  • The administration of equity interests with a view to generating income from profit distributions and capital gains.

This interpretation also has been applied to holding companies located in Denmark and the Netherlands, which are grey-listed for Brazilian tax purposes.

Source: Deloitte