Brazilian Companies must be prepared to comply with FACTA in 2014. Enacted in 2010, the FACTA Agreement, a mechanism to prevent tax evasion by US Persons is directed specifically to assets of such Persons abroad. According to FACTA, the Financial Institutions (including Insurance Companies) will have to inform IRS data such name, address, bank account balance sheets of American tax payers abroad. After the first impact, due to the invasive effects of the American Tax Legislation, when most countries tended to reject adherence to same, the present tendency is for its adoption as of January, 2014. The initial reluctance of said countries concerned the advantages that companies controlled by US Persons had; transferring their tax domiciles abroad and use local legislation as a form of ignore FACTA. The strategy of the American Government was to sign Inter Governmental Agreements (IGAs) with each country to prevent such excuses. The United Kingdom, Switzerland, Ireland, Mexico and Denmark have already joined the treaty for the exchange of information. Germany, Italy and Japan are still in negotiations. Brazil has just enacted Decree 8003/2013, which enforces the Inter-Governmental Agreement (IGA)[1] that enables the exchange of tax information between Brazilian and the United States Tax Authorities. MMA believes it will be a very tough task for Brazilian companies to identify all American clients in their portfolio In such tide schedule as January 2014. The best advice is to start now. FACTA is a long document of more than 500 pages that needs special care and attention from Brazilian companies. It is regarded as a very clever statute to fight tax evasion in the USA, however, it is an additional burden for Brazilian companies. According to its provisions, even though the exchange of information and the effective deliverance of data to the American Tax Authorities start only in 2015, information relating to the fiscal years of 2013 and 2014 may be requested. In view of that, the transactions of Brazilian persons with US related persons will have to be in compliance with FACTA as soon as January 1st, 2014. This provision means that at the beginning of next year, Brazilian persons will have to state in their new finance contracts if the client is a US person or not. Even those Brazilian persons who believe that their contracts fall out of FACTA control are strongly advised to obtain a negative covenant and avoid future sanctions. Brazilian Companies adhering to FACTA will have to be registered as Foreign Financial Institutions (FFIs) or Nonfinancial Foreign Entities (NFFEs) before American Tax Authorities as soon as the second semester of 2013. The deadline for adhering to FACTA and register in the IRS is next June 30th. There is a sensation of apprehension in the Brazilian market, mainly among those that can be more affected by this new American legislation. MMA suggests that such entities organize a due diligence process to identify financial transactions with US Persons. As many operational and technological routines might have to be adapted, the ideal situation is that Brazilian affected companies start to prepare a plan of action to deal with FACTA compliance requests as soon as now. Analyzing the definitive scope of FACTA, published early this year and the negotiation and execution of IGAs relating to exchange of tax information between the United States and countries of the G8; MMA believes that Brazilian persons who do not adhere to FACTA may face uncomfortable situations in the near future. These vary from damages to their corporate images to retention of gains of their financial investments in the American market. According to Brazilian Tax Authorities, the Agreement will allow IRS to enquire about US persons with domicile in Brazil and “Receita Federal do Brasil” to do the same concerning Brazilian persons with domicile in the USA. The two combined events, namely, the signature of the IGA between Brazil and USA and the enactment of the final version of the FACTA, highlight MMAs advice that all Brazilian banks, financial institutions, including the asset managing ones and the insurance companies will have to take urgent measures to identify US persons among their clients and report their transactions to IRS. By signing the IGA with the United States, Brazilian Government is facilitating the life of Brazilian companies interacting with US persons, as their reports may be forwarded directly to the Brazilian tax authorities, who will then forward same to IRS when necessary. In doing so, the risk of Brazilian companies of breaking Brazilian Law, such as bank secrecy, and other consumer-related questions. The countdown for Brazilian companies to adapt to FACTA has already started. Our advice is: do not postpone the necessary proceedings.
Posted on: Sat, 05 Oct 2013 17:59:12 +0000
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