Current Brazilian laws define as ‘fiscal haven” any country that protects the secrecy of information pertaining to ownership structure of legal entities or to the identity of the actual beneficiary of financial yields assigned to non-residents. The category also comprises countries which tax income is at a rate below twenty percent (20%) or levy no tax at all.

Among countries with a distinct tax system is a group to which Brazilian Act nº 11.727/08 refers as maintaining a ‘privileged tax scheme”. This notion applies to countries or states that either set forth transfer pricing regulations offering tax and legal advantages to attract investors, such as the benefits granted without demanding any substantial ongoing economic activity within the country, or that deny any access to information on corporate makeup, asset ownership, and the track record of operations.

Under article n. 8º of Act nº 9.779/99, except for a few cases, the yield resulting from any operation in which the beneficiary is a resident in a country imposing tax rates no higher than twenty percent (20%) or no tax at all is subject to a withholding tax of twenty-five percent (25%). Therefore, operations in ‘fiscal havens’ are taxable at twenty-five percent over withholding tax charges.

In turn, operations in countries with notable ‘privileged tax schemes’ are not imposed the twenty-five-percent withholding tax. For tax purposes, these operations depend upon an analysis of their transfer pricing, as stated in the opinion of Brazilian tax authorities:

(...)
It should be pointed out that the notion of ‘privileged tax scheme’ arises from the intent to establish a transfer pricing control system to operations with entities that benefit from a more favourable tax regime and that may potentially lead to the reduction of the Brazilian taxable base, even when exceptionally stated by governing laws in the country or state in which the beneficiary resides.

The key question is whether withholding taxes apply to demurrage charges to countries with a distinct tax system, including those countries referred to as ‘fiscal havens’ and those with a ‘privileged tax scheme’.

Note that, from an objective viewpoint, demurrage is the charge paid to a carrier in case of delay in cargo loading, i.e., an additional charge on a longer-than-expected time at the port.

This payment as compensation may be made by the charterer, lessee, exporter or importer, shipowner, or equipment owner. The payment may be made to the benefit of countries known as ‘fiscal havens’ and those with ‘privileged tax schemes’, both of which make up the scope of this study.

This payment is intended as compensation. In addition, there is a sharp distinction between ‘fiscal havens’ and countries with ‘privileged tax schemes’. Thus, we can safely conclude that no special tax regime applies to demurrage charges in territories with a ‘privileged tax scheme”. These cases, however, fall within the tax rates under article 1º of Act n. 9481/97.

Orly Santana - Partner: Tax and Civil Litigation
Natalia Salviano Obstat – Tax Attorney