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Gradual Reduction of IOF Rate on Foreign Exchange Transactions

The Tax on Financial Transactions (IOF) is a federal tax provided for in art. 153, item V of the Federal Constitution. Its function is not merely to collect taxes, but to intervene and regulate market situations, which justifies the ease with which its calculation can be modified.

Regulated by Decree no. 6.306/2007, it may be applied to five distinct situations: foreign exchange operations; insurance operations in general; credit operations; bonds and securities; and operations with gold.

Despite the importance of the tax on credit operations, that is, when financial assets are transferred between legal entities, or between individuals and legal entities, we propose here to comment on the recent changes made in the calculation of IOF on foreign exchange operations.

The IOF tax is charged on foreign exchange transactions upon delivery or availability of national or foreign currency, in cash or a document representing cash, and is calculated on the value in Real after conversion. The tax is due on settlement of the exchange operation and may be charged at a rate of up to 25%.

With a view to promoting greater economic integration of the country into the international community, Decree no. 10.997 was published on March 15, 2022, gradually reducing the IOF rates on foreign exchange transactions. The reduction also confirms the adoption of measures aimed at enabling the country to join the OECD (Organisation for Economic Cooperation and Development).

In the case of entry of funds into the country by way of a foreign loan, even through simultaneous operations, registered with the Central Bank of Brazil and with a minimum average term of up to 180 days, the rate has been reduced from 6% to zero, with the reduction being applied immediately.

The new decree has also regulated the gradual reduction of the tax on foreign exchange transactions for the purpose of complying with the obligations of credit and debit card companies or of cards for international use, in the cases specified therein, as well as on the acquisition of foreign currency in travellers checks and for loading prepaid international cards for journeys abroad. In this case, the rates will be reduced to: 5.38% as of January 2, 2023; 4.38% as of January 2, 2024; 3.38% as of January 2, 2025; 2.38% as of January 2, 2026; 1.38% as of January 2, 2027 and 0% as of January 2, 2028.

The 0.38% rate, currently applicable to foreign exchange operations in general, will be reduced to zero as of January 2, 2029, which in practice will result in a reduction to a zero rate for all operations, thereby enabling the country to be more competitive in the international arena.

The Stüssi-Neves team is at your disposal for any further explanation you may require.

Patrícia Giacomin Pádua

Partner in the Tax Area – São Paulo
[email protected]

Thailand’s PUGNATORIUS Expresses Concerns Regarding TIWB

TIWB is an initiative to facilitate the transfer of tax audit knowledge and skills to developing country tax administrations using a practical, “learning by doing” approach.

Thailand’s recent participation in the “Tax Inspectors Without Borders” assistance program endangers not so much legally but factually the long-term cherished cross-border tax structures among the land of smiles. It demands sooner or later increased requirements for local tax advice and international tax planning.

TIWB allows the OECD, which is behind this raid against international tax competition, to familiarise the Thai tax authorities with OECD tax policy and viewpoints by sending their expert auditors to a tax-legally underdeveloped country, as Thailand is considered not entirely unjustified.

In the past, Thailand has been deliberately reluctant to interpret and reclassify cross-border transactions and to reinterpret double taxation agreements and tax information exchange agreements. This was done with good reason, only ostensibly inefficient, and Thailand participated in this tax-friendly treatment in several ways and at several levels.

The formal reason for Thailand’s Revenue Department to sign up for the training course for a world of “taxation without borders” is the desire to tax cross-border e-commerce and streaming services. However, this is not a limitation but only a starting point for the new right way of taxation with the friendly and targeted support by the OECD.

To address the tax challenges of the digital economy is just the first step on the 15-points-action BEPS list of the OECD. The base erosion and profit shifting initiative is e.g. also directed towards the topics of CFC controlled foreign companies, transfer pricing, abuse of tax treaties, and aggressive tax planning arrangements.

The tax counsellor PUGNATORIUS Ltd. analyses and monitors further developments and will provide practicable solutions for the more stringent requirements of future Thai tax planning. The announcements of the Thai Revenue Department are from June 2020. The Bangkok law firm sees a pressing need for action in this area for a variety of Thai tax issues.