The international cooperation among tax authorities throughout the world is a direct consequence of the globalization phenomenon and a worldwide trend (tendency) that was ultimately consolidated by the Convention on Mutual Administrative Assistance in Tax Matters (hereinafter designated as the “Convention”), which was envisioned and pioneered by a joint effort of the Organization for Economic Cooperation and Development (OEDC) and the Council of Europe in 1988 and further amended by a Protocol in the year of 2010. The Convention establishes the international exchange of tax information among authorities from more than a hundred different countries, aiming at suppressing tax evasion on a global scale and, consequently, prevent losses of revenue. Also, the Convention provides that the signatory nations shall apply their best efforts to establish international patterns of taxation of entities and individuals, approximating their tax regimes and legal systems.
In Brazil, the Convention has been incorporated to national legal system by the Decree n. 8.842, dated of August 29th, 2016, which came legally into force in October 1st of that same year. Beyond substantially enlarge the network of bilateral agreements on the matter already signed by Brazil over the past two decades – and not yet ratified – concerning essentially to mutual assistance on tax information’s exchange upon authorities’ requests, the Convention inserted the country in an environment of automatic exchange of such data, that is duly regulated by the standards and procedures approved by G-20 members in 2014, named Common Reporting Standards, or simply CRS.
The first exchange based on the CRS is scheduled for September, 2017, and will involve fifty-four of the signatory nations. Brazil will only engage such exchange in September, 2018, with other forty-six signatory countries. The information to be exchanged according to the Convention will be gathered by the Federal Revenue through the system E-Financeira, already used to transmitting tax and financial information to the United Estates’ Federal Revenue based on the Foreign Account Tax Compliance Act (FATCA). The FATCA is a bilateral agreement signed between United Estates and Brazil regarding reciprocal exchange of banking and tax information, which on the first exchange – that took place on September, 2015 – unveiled more than twenty-five thousand bank accounts and financial applications held by Brazilian companies and citizens in American territory not declared to Brazilian authorities.
The CRS will encompass the exchange of information regarding bank accounts, dividends, financial applications’ yields, and other types of income from individuals and companies placed oversees. Provided the sensibility surrounding the sort of exchanged information, the Convention imposes strict confidentiality and secrecy duties to be uphold by the signatory nations. Also, the information received through the CRS can only be used by the recipient’s authorities responsible for tax assessment and collection with the purposes of increasing tax efficiency rates.
The Convention also appoint two other forms of international exchange of information, which are based on specific demand and voluntarily disclosed. This last form is set to occur at any sign of potential loss of revenue’s situations engaging signatory nations, mainly due to commercial and corporate transactions structured for diminishing tax load, fictitious transfer of profit between companies of the same corporate group, abusive tax planning, among other situations that directly impact taxation.
Given this new collaborative scenario, companies and individuals carrying their businesses or holding financial operations and assets abroad must be aware of all reflexes that can arise from the Convention and, especially, its range of applicability, keeping an even closer monitoring on the regularity and compliance of their transactions before the competent tax authorities. The correct structuring of businesses and corporate transactions, with an adequate tax planning, are now essential to avoid financial losses and tax and criminal convictions in the onset of this new international reality.