What's new! In M&A TAX

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A publication by PwC Brazil - 5^th Edition - January 2011

Brazilian IOF levied on investments made via FIPs, the changes on the withholding income tax (WHT) legislation, some comments to the Brazilian Sugar and Ethanol Industry and the suspension of Spanish “ETVEs” from the Brazilian privileged tax regimes’ blacklist

Just as in the 2nd Edition of “What’s new in M&A Tax”, we call again M&A players’ attention to the significant changes of the Brazilian Tax on Financial, Exchange and Insurance Transactions (IOF) levied on foreign investments made via private equity funds (the so called “FIPs”). 

In addition to the changes on the IOF taxation, some other new rules were recently introduced through Provisional Measure 517, issued on December 31, 2010, such as the reduction of the WHT levied on income derived from debentures and other publicly-issued bonds (acquired as from January 1, 2011), paid to foreign beneficiaries, to a “zero rate”.

In this edition we also have some comments on the Brazilian Sugar and Ethanol Industry, its peculiarities, specific regimes of taxation and labor issues.  This sector is currently in the focus of the M&A Market and there are several concerns which may justify the importance of carrying out a tax and labor review before bidding for the acquisition of interest in companies of this industry.

Finally, we highlight the recent suspension of the Spanish ETVEs from the Brazilian blacklist of privileged tax regimes. As from November 30, 2010, Spanish ETVEs are suspended from the adverse effects arising from tax deductibility, thin cap and transfer pricing rules applicable to companies subject to privileged tax regimes.

By Rodrigo Bastos, M&A Tax Partner and Private Equity Tax Leader in Brazil