US embassy cable - 05BRASILIA1816

UNCLAS BRASILIA 001816 
 
SIPDIS 
 
EB/TRA/AN FOR BRIAN GRIMM 
 
E.O. 12958: N/A 
TAGS: EAIR, KTIA, Transportation Issues 
SUBJECT: BRAZIL CIVAIR: RESOLVING TAXATION DISPUTE 
 
REF: SECSTATE 27268 
 
1. Post has received a diplomatic note from the Ministry of 
Foreign Affairs replying to our February 16 note (reftel) 
regarding taxation of airlines in the U.S.  The Brazilian 
note states that, based on our assurance that Brazilian 
airlines are not subject to social taxes equivalent to 
certain Brazilian taxes, the GoB will extend reciprocal 
treatment to U.S. carriers, including the cancellation of 
any social taxes levied against U.S. air carriers prior to 
August 24, 2001.  This has been an issue for one U.S. air 
cargo carrier, which had faced a longstanding (and large) 
social tax assessment on its Brazil operations prior to the 
entry into force of our most recent bilateral aviation 
agreement.  The bilateral agreement exempts all U.S. 
carriers from these taxes.  The Ministry of Foreign Affairs 
intends to publish the exchange of notes in their equivalent 
of the Federal Register, which should allow the affected 
U.S. air cargo carrier to have the tax assessment 
overturned.  An unofficial translation follows in paragraph 
2.  The original will be pouched to EB/TRA/AN Brian Grimm. 
 
2. Begin text. 
 
URGENT 
DSF/DEUC/049/EFIN-ETRA 
 
     The Ministry of Foreign Affairs presents its 
compliments to the Embassy of the United States of America, 
and with reference to your Diplomatic Note No. 54 of 
February 16, 2005, notes that, as mentioned in your note, 
"Brazilian airline transport carriers operating to the U.S. 
have not been and are not now subject to taxes equivalent to 
the Brazilian "Contribuicao para o Programa de Integracao 
Social (PIS)", "Contribuicao Social para o Fundo de 
Investimento Social (FINSOCIAL)" and "Contribuicao Social 
para o Financiamento da Seguridade Social (COFINS)." 
 
     The Ministry of Foreign Affairs, based on the existence 
of reciprocal treatment for Brazilian carriers, is pleased 
to confirm that: 
 
a) in accordance with article 14, V, paragraph 1, of 
Provisional Measure 2.158-35, dated August 24, 2001, U.S. 
air transport carriers that operate in Brazil are exempt 
from the tax contributions denominated "Contribuicao para o 
Programa de Integracao Social (PIS), and Contribuicao Social 
para o Financiamento da Seguridade Social (COFINS)"; and, 
 
b) in accordance with article 4, and its paragraphs, of Law 
no. 10.560, dated November 13, 2002, as amended by article 
20 of Law no. 11.051, dated December 29, 2004, and 
procedures established in Joint Decree PGFN/SRF/no. 6, dated 
December 30, 2003, the debt attributed to U.S. air transport 
carriers operating in Brazil related to contributions 
denominated "Contribuicao para o Programa de Integracao 
Social (PIS)", "Contribuicao Social para o Fundo de 
Investimento Social (FINSOCIAL)", and "Contruibicao Social 
para o Financiamento da Seguridade Social (COFINS)" that 
took place up to the day immediately prior to August 24, 
2001, the date that art. 14, V, and paragraph 1 of 
Provisional Measure no. 2.158-35 took effect, are canceled 
and corresponding entries are declared null and void for all 
purposes. 
 
End Text. 
 
CHICOLA