The Brazilian Federal Revenue Service and the new understanding on import operations with trading companies

The importation in Brazil, in general, is performed based on the presentation of certain tax and customs declarations and, in case of selection of goods by the administrative authorities, it may be required a physical inspection and/or an analysis of documents.

It is worth highlighting that the flow of each import operation will depend whether is required or not a licensing or the selection of declarations for customs conference purposes, a phase during which physical and/or document control takes place.

Among the diverse topics that can lead to an analysis of importation in Brazil, one of the most important is the correct identification of key attention points regarding the international movement of goods.

Some of these points are currently being used by customs administration as well as other public bodies for the promotion of the image of Brazil in relation to their engagement in improving legislation, as well as the application of the WTO Trade Facilitation Agreement and other trade facilitation initiatives.

From such perspective, it is clear that the operationalization of importation in Brazil should consider the evolution of the legislation and the understanding of the Federal Revenue of Brazil (RFB) on the three types of importation set forth in the legislation, as follows: (i) direct import; (ii) import on behalf of a third party and (iii) import by order.

The first one is that in which the importer uses his own resources, negotiates with the foreign supplier and bears all the cost and risk of the operation[1] .

In the operations of import on behalf of third parties, the hired company (trading) promotes the operation on its behalf, but goods were purchased by another company. In this case, administrative authorities understands that the real acquirer is the one who bears tax’s financial burden and qualifies the importer only as acquirer’s representative, which resources belongs to the real acquirer.

The import by order is characterized when a company acquires goods abroad with its own resources and promotes its import customs clearance in order to resell them later to a previously determined ordering company, due to a contract signed between the importer and the ordering company[2] .

With regard specifically to import by order, which usually leads to major tax disputes in Brazil, such as the issue of loans or financing to facilitate import companies’ operations[3] , the Brazilian Federal Revenue Service (known as “RFB”) published on September 28, 2021, the COSIT Consultation Solution No. 158/2021, which confirms that it is unnecessary to inform, in the import declaration, information related to their customers, pre-determined orders (“orderer of the orderer”) and who are the real recipients and resellers in Brazil of the imported goods.

With this understanding, RFB confirmed that the existence of a “pre-determined orderer’s ordering party” would not de-characterize the import by order and that such fact cannot, by itself, grounds an eventual accusation of concealment of the real purchaser of the imported goods (article 33, Law 11.488/07).

In addition, RFB confirmed in this recent position that there is no legal prohibition for such import by order transactions to involve domestic companies with a corporate relationship. In this sense, the administrative authorities expressly stated that the existence of a corporate relationship should not be confused with the infraction of concealing the taxpayer by means of fraud, simulation, or fraudulent interposition (item V, of article 23 of Decree-Law no. 1,455 of 1976).

It is important to note that this official position of RFB was issued in the context of a consultation made by a taxpayer acting as an importer and merchant of goods who also intends to act as a trading company, but it could be used as a basis for all Brazilian taxpayers that find themselves in the same concrete situation described in said COSIT Consultation Solution.

Also, this recent position is especially important under a compliance perspective, as it provides safe guidelines for the fulfillment of tax obligations by importers. With regard to compliance on trade & customs operations, according to KPMG’s report “Global benchmarking report: indirect tax and trade compliance”, from March, 2018[4] , “around the world, the past 5 years have seen the introduction or rapid expansion of electronic invoicing and the online filing of VAT and GST returns. Brazil has led the way with perhaps the most advanced e-invoicing system in the world, requiring a digital stamp from the tax authority and real-time reporting of transactions”.

In relation to Brazil, the attention to tax and legal compliance in import operations enables to avoid or even reduce tax disputes, especially in the present situation. There is a background of several actions taken by the RFB that qualified the “orderer's orderer” as a third party supposedly hidden by an act of simulation or fraud[5] , often merely presumed and, as a consequence, subjected importers to the payment of a fine of 100% of the value of imported goods.?

This new RFB’s understanding, in view of its commitment in the improvement of the tax and customs legislation, materializes the search for operational efficiency of the procedures conducted by Customs Department and the relevance of legal compliance in imports made in Brazil. This improves the Brazilian legislation and other trade facilitation actions and limits allegations regarding taxpayer’s concealment only to those cases in which tax authorities have concrete proofs and correctly identify the occurrence of fraud or simulation.

Allan Fallet[1]

Airton Freitas[2]

[1] ?Master's degree on Tax Law from PUC/SP. LL.M. from FGV. Specialization in International Tax Law from Northwestern University and Universiteit Leiden, in Constitutional Law from IDP and in Tax Administrative Proceedings from Brazilian Association of Financial Law (“ABDF”). Administrative Judge (representative of taxpayers) at the Administrative Tax Court of the State of S?o Paulo and the Administrative Tax Counsel of the Municipality of S?o Paulo. Professor of the Post-Graduation course on Tax Law - PUC/SP. Member of the Brazilian Institute of Tax Law, of ABDF and of the International Fiscal Association. Partner and Head of Tax at LTSA Advogados.

[2] ?Specialization in Tax Law (PUC/SP). Extension in Rethinking International Tax Law (Universiteit Leiden). MBA in Tax Management (FIPECAFI/USP). Member of the Brazilian Institute of Tax Law and of the Brazilian Institute of Finance Executives (Ceará State). Attorney and Tax Manager at Ferraz de Camargo e Matsunaga Advogados Associados (FCAM), with a focus to provide legal services to clients located at the North and Northeast regions of Brazil.

[1] ?DISIT/SRRF07 Consultation Solution no. 7016, March 15, 2019.

[2] ?DISIT/SRRF07 Consultation Solution no. 7016, March 15, 2019.

[3] ?Discussion that was solved with COSIT Consultation Solution no. 129.

[4] ?Global benchmarking report: indirect tax and trade compliance (assets.kpmg)

[5] ?For example, Decisions no. 3401-003.985 and no. 3401-003.978 rendered by the Federal Administrative Court of Tax Appeals (known as CARF), whose trial finished on September 26, 2017.