PM 517/2010 introduced several tax benefits in the Brazilian tax system and was converted into Law 12,431. Law 12,431 further amended some of PM 517/2010's provisions. The main amendments include: extending the zero withholding tax on bonds and securities to funds with at least 98% in such assets; extending preferential tax treatment for debentures issued for infrastructure and research projects; extending capital gains tax exemption for sales of funds investing in research; extending the zero withholding tax for aircraft leasing through 2013; and allowing automatic offsetting of taxpayer credits and debts with the Federal Union.

1. Brazil
Report from our correspondent Bruno Carramaschi, Lobo & de Rizzo Advogados, São Paulo
Further amendments resulting from conversion of PM 517/2011 into Law – details
As previously reported (see TNS:2011-07-04:BR-1), Provisional Measure 517/2010 (PM 517/2010), which introduced several tax
benefits in the Brazilian tax system (see TNS:2011-01-04:BR-4), was converted into
Law 12,431, published in the Official Gazette of 27 June 2011 and in force as of that date.
Law 12,431 is in parts new, amending and consolidating.
The main amendments to the provisions of PM 517/2010 are the following:
Withholding tax on income from bonds and securities
PM 517 reduced to zero the withholding income tax on income derived by non-resident persons (except when resident in countries
that do not tax income or tax it at a maximum rate of 20%) from bonds and securities publicly traded by Brazilian legal entities
classified as non-financial institutions, under certain conditions.
In addition, under Law 12,431, the non-resident persons must comply with the rules and conditions provided by the National
Monetary Council for foreign investments (CMN Resolution 2,689). Law 12,431 also extends the benefit to income from
investments in funds where at least 98% of its portfolio consists of the above-mentioned bonds and securities.
Investment income from debentures
Under PM 517, investment income from debentures issued by legal entities specifically incorporated to implement infrastructure
projects, according to regulation to be issued by the Executive, are:
– exempt when derived by resident individuals; or
– subject to a 15% final withholding tax when derived by resident legal entities.
Law 12,431 extended the treatment to income from debentures issued by legal entities carrying on research, development and
innovation projects ("PD&I projects"), including the income derived by financial institutions.
The Law also provides a 20% penalty over the total amount of the debentures where the legal entities fail to implement the PD&I
projects.
Capital gains from the disposal of interest in specific funds
Under PM 517, capital gains earned by resident individuals on the disposal of interest (quotas) in FIP-IE, within or outside the stock
exchange market, are subject to a zero rate (previously subject to a 15% income tax rate).
Law 12,431 extended the same benefit to capital gains earned by resident individuals on the disposal of interest (quotas) in Private
Equity Fund on Research, Development and Innovation (Fundo de Investimento em Participação na Produção Econômica Intensiva
em Pesquisa, Desenvolvimento e Inovação – FIP-PD&I).
International aircraft leasing – Zero rate withholding tax
Art. 45 of Law 12.431 amended Art. 16 of Law 11,371 providing that the zero withholding tax rate is extended to payments made
by Brazilian airlines to non-Brazilian resident entities as compensation for the leasing of aircrafts and aircraft engines under leasing
agreements signed between 31 December 2011 and 31 December 2013.
The zero rate applicable to aircraft leasing is scheduled to terminate on 31 December 2016.
Automatic offsetting of taxpayers credits and debts
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2. Law 12,431 grants to the National Treasury authorities the power to determine automatically offsetting of taxpayers credits and
debts with the Federal Union.
Reference: TNS:2011-07-04:BR-1.
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