Brazil Finalizing Drawback Rules for Agribusiness
- Brazil
- 02/16/2009
- Azevedo Sette Advogados
Originally published in the January 21 edition of World Tax Daily
Brazil’s Ministry of Development and Federal Revenue Department are finalizing new drawback rules that would grant tax relief for agribusiness products used as materials of other goods destined to exports. The rules are expected to be in place by February.
The new “rural” drawback regime would allow suspension of some federal taxes levied on domestic sales of agribusiness products when the purchaser of those products used them to produce other goods destined to exports. Corn and soy residues sold as fodder for livestock that will ultimately be exported is one example of eligible agribusiness products.
The new regime would encompass the federal excise tax (IPI), the Program for Social Integration (P.I.S.), and the Contribution for the Financing of Social Security (COFINS). After the final product is exported, the tax suspensions become tax exemptions. Failure to export goods that included materials benefiting from drawback tax breaks would require exporters to pay the unpaid taxes with penalties and interest, as is the case with other drawback regimes.
According to Foreign Trade Secretary Welber Barral, the last obstacle to putting the new rules in place is finding a way for tax authorities to monitor, control, and audit the flow of agribusiness products from producers to exporters. In some situations, the chain of production might be complex, and the rules must include means to deter tax fraud or the use of the breaks for ineligible transactions.
The main difference between the new rural regime and other drawback regimes (currently, nine different regimes are available to different sectors) is that the rural regime will not require any import of foreign materials, which is usually required under the current regimes.
The suspension of P.I.S., COFINS, and IPI under the new drawback regime would definitely reduce the final sales price of agribusiness products used in exported goods. According to Ministry of Development calculations, the traditional drawback regime, which also includes suspension of import duties and the state VAT (ICMS), reduces the cost of goods by an average of 7 percent. Hence, the new regime may help boost Brazilian exports during the international economic crisis.
David Roberto R. Soares da Silva, tax partner, Azevedo Sette Advogados, São Paulo
