Despite the increase in the number of individuals who have submitted a final declaration of exit from Brazil – which is close to 50 thousand in the last two years – the interest of the Tax Authority has also increased in the taxation of income resulting from investments these people have maintained in the country. The understanding of the Brazilian Federal Revenue Service is that there is a necessity to withhold income tax arising from investments made in the country, even if the investor, individual or legal entity, is not a resident.
In a specific case analyzed by the Federal Court of the Judiciary Section of São Paulo, in which was requested the non-taxation of Income Tax on the yield arising from financial investments not redeemed/sold in Brazil of an executive not residing in the Country the legality of taxation based on what determines the Declaratory Act no. 1/2016 was recognized. The act requires the withholding of income tax at the time of the currency conversion of investments by the financial institutions. The principle that led the taxpayer to the Federal Court is the absence of a legal basis for the tax collection.
For the judge who analyzed the case, the conversion of the value invested into foreign currency does not occur for the original value, but also includes capital gains, which is a fact that generates income tax.
As a result of the Tax Authority new stance, in only five inspections the auditors of the Special Office for Large Taxpayers have already promoted the launch of 1.7 billion reais, including fines, from investors who did not adjust their conduct and investment funds. A clear sign that the Federal Revenue will extend this type of task force to reach a wider range of taxpayers.
According to lawyer Bruno Zaroni, founding member of Zaroni Advogados, the Federal Revenue is turning its attention to the modus operandi of these financial institutions, charging banks and affiliates to identify the final beneficiaries of the investments made by non-residents. “In the case of non-residents who fit into this situation, it is interesting to analyze the regularity of the investment, to verify whether it is taxable or not. If it is, it is also important to verify the viability of a spontaneous recognition of the debt, with the collection without the incidence of any fines,” he states.