Brazil leaves interest on net equity rules unchanged Tax Insights

Tax Insights
from International Tax Services
Brazil leaves interest on net equity
rules unchanged
March 23, 2016
In brief
On March 9, 2016, the Brazilian Senate released a notice confirming that Provisional Measure 694/2015
(PM 694) expired as of that date and will not be converted into law. PM 694 would have added a new
deductibility limit for interest on net equity (INE) for Brazilian income tax and social contribution tax
purposes and increased the income tax withholding rate on INE payments to certain non-resident
shareholders.
The proposed deductibility limit and income tax withholding increase therefore will not take effect.
For prior coverage of the proposed changes, see PwC Insight, ‘Brazil proposes tighter limits on
deductibility of interest on net equity,’ October 26, 2015.
In detail
The Brazilian Senate on March
9 released a notice confirming
that that it will not approve PM
694, a necessary step for PM
694 to be converted into law.
The Brazilian Executive Branch
had issued PM 694 on
September 30, 2015. PM 694
would have imposed additional
limitations on the deductibility
of INE payments for Brazilian
income tax and social
contribution purposes.
The PM also would have
increased the income tax
withholding rate on INE
payments to non-black-listed
tax-haven jurisdictions from
15% to 18%.
The amendments in PM 694
would have taken effect on
January 1, 2017, if the PM had
been approved within 60 days
after its publication, or an
additional 60 days if extended
by the Senate.
The Senate recognized the merit
of the proposal as well as the
interests of the Executive
Branch, the states, and
important economic sectors.
Because PM 694 arrived at the
Senate with only seven days for
Senate review, however, the
Senate decided not to approve
it. The PM therefore expired on
March 9, 2016, with the
proposed amendments never
coming into effect.
The takeaway
Multinational companies that
own Brazilian entities should
continue to monitor
developments related to INE
payments, as it is possible that
the proposed amendments will
be reintroduced in a future
Provisional Measure.
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Let’s talk
For a deeper discussion of how this might affect your business, please contact:
International Tax Services, United States
John A. Salerno, US LATAX Leader
+1 (646) 471-2394
[email protected]
Jose Leiman
+1 (305) 381-7616
[email protected]
Rafael Vianello
+1 (646) 471-9809
[email protected]
Maria Bel
+1 (646) 471-1268
[email protected]
Daniel Landaluce
+1 (646) 471-7762
[email protected]
Lucia Echenique Fossati
+1 (646) 471-6294
[email protected]
Camila Silva Jimenez
+1 (646) 471-8794
[email protected]
Estevan Leal
+1 (646) 335-4838
[email protected]
International Tax Services, Brazil
Durval Portela
+55 11 3674 2582
[email protected]
Alvaro Pereira
+ 55 11 3674 2954
[email protected]
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