Brazilian tax authorities issue proposed ruling on the definition of ‘significant economic activities’ for purposes of ‘gray list’

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August 2016

Overview

The Brazilian tax authorities on May 30, 2016, issued proposed ruling PC 007/2016, stating their view of the intended meaning of ‘significant economic activities’ for purposes of Article 2 of Normative Instruction 1,037/2010 (NI 1,037/2010).

NI 1,037/2010 names blacklisted countries and privileged tax regimes (‘gray list’) from a Brazilian tax perspective. Article 2 of NI 1,037/2010 states that privileged tax regimes are, among others, those applicable to holding companies organized in Denmark or the Netherlands with no significant economic activities.

Pursuant to PC 007/2016, a foreign holding company is deemed to carry out significant economic activities if it has operating capacity and adequate premises to manage and make decisions regarding (i) activities that generate income from assets, other than profit distributions and capital gains income, or (ii) the management of equity interests that generate income in the form of profit distributions and capital gains.

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