The Brazilian Federal Tax Authority (“RFB”), in compliance with the position indicated in the Interpretative Declaratory Act No.05/2018, started notifying taxpayers who held undeclared assets abroad and registered them in the Special Taxation and Foreign Currency Regularization Regime (“RERCT”) – “Asset Repatriation Program” -, enacted by Law No.13,254/2016.
As is well known, one of the purposes of the Asset Repatriation Program was to increase the collection of taxes by the Brazilian government by granting taxpayers interested in nationalizing their assets the benefit of more lenient penalties.
The RFB’s risk management area is selecting taxpayers who will be notified based on preliminary data. The estimate is that “hundreds of notices” are to be delivered in the next five years, which means that not all taxpayers submitted to the Asset Repatriation Program will be audited, only those who the RFB deems necessary to confirm the information declared when regularizing their assets in the Asset Repatriation Program with adequate supporting documentation. The purpose is to obtain proof of the origin of the resources obtained by the taxpayers or, in other words, to review whether they come from licit or illicit activities.
As announced by the RFB, taxpayers who are notified must evidence the sources informed at the time of submission and the data provided will be cross-checked with information provided by foreign regulatory entities. In the event of inconsistencies, the Federal Public Prosecution Service (“MPF”) will intervene in the conduction of the cases and, if irregularities are identified, the taxpayer may be excluded from the Asset Repatriation Program, lose the benefit of criminal amnesty and be prosecuted for the crimes of money laundering, crimes against the tax system and, possibly, against the public administration.
This new rule has caused uncertainty among beneficiaries of the Asset Repatriation Program since, initially, the Program provided that no evidence of the origin of the financial resources would have to be submitted, which would be the responsibility of the RFB itself. The explanation for such change is that the documentation is part of a “new phase” of the implementation of the Asset Repatriation Program in which the taxpayer, in addition to the duty to file legitimate documents, will be subject to the RFB’s audit.
Within this context, the announced position has been challenged by those who expected that the burden of proof would tie on the RFB, in accordance with the position they had been adopting up to the end of 2018.