US embassy cable - 05BRASILIA1929

UNCLAS SECTION 01 OF 05 BRASILIA 001929 
 
SIPDIS 
 
STATE PASS USTR 
NSC FOR CRONIN 
AID FOR LAC/SA 
TREASURY FOR OASIA - DAS LEE AND FPARODI 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
BUENOS AIRES FOR HAARSAGER 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, EFIN, EAGR, BEXP, Trade 
SUBJECT:  MP 252 - BRAZILIAN TAX BREAKS FOR EXPORTERS 
 
Ref: Brasilia 1682 
1.  As reported in reftel, on June 15 the Lula 
administration issued Provisional Measure (MP) 252, which 
enacts a series of changes in the tax system to benefit 
multiple sectors.  Some Brazilian analysts have questioned 
the WTO-consistency of the tax benefits provided by the MP 
to exporters.  Specifically, the "RECAP" section (Chapter 2) 
of the MP suspends certain taxes on the sales and 
importation of capital goods for firms for which 80 percent 
or more of their gross income is derived from exports.  The 
"REPES" section (Chapter 1) provides certain tax exemptions 
for exporters of software and IT services. 
2.  Below is an unofficial translation of the RECAP and 
REPES portions of MP 252.  Agencies/offices which are 
interested in obtaining the complete Portuguese version of 
MP 252 should contact Bruce Williamson at 
williamsonb@state.gov. 
 
Begin Text. 
 
"PROVISIONAL MEASURE No. 252, OF JUNE 15, 2005. 
 
Institutes the Special Taxation Regime for the Information 
Technology Exportation Platform - REPES, the Special Regime 
for the Acquisition of Capital Goods by Exporting 
Enterprises - RECAP and the Program for Digital Inclusion, 
sets out provisions on fiscal incentives for technological 
innovation, and makes other provisions. 
 
THE PRESIDENT OF THE REPUBLIC, in due exercise of the 
attributes conferred by Article 62 of the Constitution, 
adopts the following Provisional Measure which shall have 
force of law: 
 
CHAPTER I 
 
THE SPECIAL TAXATION REGIME FOR THE INFORMATION TECHNOLOGY 
EXPORTATION PLATFORM - REPES 
 
Art. 1.  The Special Taxation Regime for the Information 
Technology Exportation Platform is hereby instituted under 
the terms and conditions established by the Federal Revenue 
Secretariat. 
 
SIPDIS 
 
Art. 2.  The beneficiary of REPES shall be a legally 
constituted entity that exclusively exercises activities of 
software development and information technology services, 
and that upon opting for REPES, assumes a commitment to 
export over 80 percent of their annual gross income of goods 
and services. 
 
Sole Paragraph: The provisions of this article do not apply 
to legally constituted entities whose incomes, in total or 
part, are subject to the Accumulative Incidence Regime of 
contributions to PIS/PASEP and Contribution to Financing of 
Social Security (COFINS). 
 
Art. 3.  For purposes of production control and proof that 
the service contractor resides or lives overseas, the REPES 
beneficiary shall utilize open code computer programs. 
 
Paragraph 1:  The Federal Revenue Secretariat will have on- 
line access, through the Internet, to the information 
covered in this chapter, for purposes of audit, with access 
control through digital certification. 
 
Paragraph 2:  For purposes of recognition of the utilization 
of the software and hardware infrastructure, the program 
covered in this chapter will be registered by the Federal 
Revenue Secretariat. 
 
Art. 4.  The requirement for contributions to PIS/PASEP - 
Importation and COFINS-Importation levied on importation of 
new goods destined for development of software and 
information technology services inside the Country is 
suspended, when imported directly from a REPES beneficiary 
for incorporation into their fixed assets. 
 
Paragraph 1: The suspension also applies to contributions 
towards PIS/PASEP and COFINS payable on the sale of subject 
goods on the domestic market, when acquired by a legally 
constituted entity beneficiary of REPES. 
 
Paragraph 2:  Invoices relative to sales covered in 
paragraph 1, must contain the statement "Sale made with the 
suspension of PIS/PASEP and COFINS contribution 
requirement", which must appear together with the 
corresponding legal reference. 
 
Paragraph 3: Based on this article, the percentage of 
exports mentioned in Article 2 will be calculated 
considering the average obtained, starting with the 
beginning of goods acquired under the scope of REPES, for a 
period of three years. 
 
Paragraph 4: The period for initiation of the utilization 
referred to in paragraph 3 shall be no greater than one year 
after acquisition. 
 
Art. 5.  The requirement for contribution to PIS/PASEP and 
COFINS incurred on the importation of services destined to 
the development, in the country, of software and information 
technology when imported directly by REPES beneficiaries, 
will be suspended. 
 
Paragraph 1:  This suspension also applies to the 
contribution of PIS/PASEP and COFINS incurred on the sale of 
such services on the domestic market, when acquired by 
legally constituted entities who are REPES beneficiaries. 
 
Paragraph 2:  Invoices relative to sales covered in 
paragraph 1, must contain the statement "Sale made with the 
suspension of PIS/PASEP and COFINS contribution 
requirement", which must appear together with the 
corresponding legal reference. 
 
Art. 6.  Suspensions covered in Articles 4 and 5 convert 
into a zero percentage rate after a period of five years 
from the date of the occurrence of the respective facts. 
 
Art 7.  Adherence to REPES is conditional on the legally 
constituted entity's being up to date with regard to federal 
taxes and contributions. 
 
Art. 8.  The legally constituted entity will have their 
benefits cancelled: 
 
I - in case of non-compliance with the export commitment 
covered in Article 2; 
 
II - whenever it is discovered that the beneficiary: 
a) doesn't satisfy the conditions or doesn't comply with the 
requirements for inclusion; or 
b) stopped satisfying conditions or compliance with 
requirements for inclusion; and 
 
III - upon request. 
 
Paragraph 1:  Upon cancellation of inclusion in REPES, the 
legally constituted entity will be subject to payment of 
interest and fines, mora or oficio, counting from the date 
of acquisition or registration of the Import Declaration, 
whichever the case, referring to unpaid contributions due to 
the suspension cited in Articles 4 and 5, as a contributor 
on imported goods or as responsible on goods acquired on the 
domestic market. 
 
Paragraph 2:  In the cases covered in clauses I and II, the 
legally constituted entity excluded from REPES, can only 
rejoin after a period of two years from the date of 
cancellation. 
 
Art. 9.  Transfer of property or cessation of use for any 
reason of the goods, imported or acquired on the domestic 
market, as per this chapter or paragraph 1 of Article 4, 
before complying with the provisions in clause 3 of the same 
Article, should be preceded by collection of interest and 
fines by the REPES beneficiary, mora or oficio, as per 
paragraph 1 of Article 8. 
 
Art. 10.  As per Article 9, if the beneficiary transfers the 
property before two years have passed, contributions will 
also be owed. 
 
Art. 11.  Adherence to REPES by a legally constituted entity 
who opted for the Integrated System of Payment of Taxes and 
Contributions for Microbusinesses and Small Businesses - 
SIMPLES, is prohibited. 
 
Art. 12.  Goods and services benefiting from the suspension 
defined in Articles 4 and 5 will be listed in regulation. 
 
 
CHAPTER II 
 
THE SPECIAL REGIME FOR THE ACQUISITION OF CAPITAL GOODS BY 
EXPORTING ENTERPRISES - RECAP 
 
Art. 13.  The Special Regime for The Acquisition of Capital 
Goods by Exporting Enterprises - RECAP is hereby instituted 
in compliance with the terms and conditions established by 
the Federal Revenue Secretariat. 
 
Art. 14.  The beneficiary of the RECAP shall be a legally 
constituted entity which predominantly exports, 
characterized as such by having had gross income originating 
from exportation activities equal to or superior to 80 
percent of its overall gross income originating from the 
sale of goods and services, in the calendar year preceding 
its adherence to the RECAP, and which commits itself to 
maintain this percentage for a period of two calendar years. 
 
Paragraph 1:  A legally constituted entity initiating 
activities or which did not attain the percentage of 
exportation required by the heading paragraph of this 
Article may qualify for the RECAP provided that it makes a 
commitment to register a gross income originating from 
exportation abroad, of at least 80 percent of its overall 
gross income from the sale of goods and services, for a 
period of three calendar years. 
 
Paragraph 2:  The provisions of this article shall not be 
applicable to those legally constituted entities whose 
incomes are, partly or wholly, subject to the Accumulative 
Incidence Regime for PIS/PASEP and COFINS Contributions. 
 
Art. 15.  The requirement for PIS/PASEP-Importation and 
COFINS-Importation Contributions payable on the importation 
of new machines, apparatus, instruments and equipment as 
listed in the regulations, is hereby suspended when the same 
are imported directly by the beneficiary of the RECAP, to be 
incorporated as non-liquid assets. 
 
Paragraph 1:   The suspension referred to in the heading 
paragraph of this article shall also be applicable to 
PIS/PASEP and COFINS Contributions payable on the sale of 
such goods on the internal market when the same have been 
acquired by a legally constituted entity, beneficiary of the 
RECAP. 
 
Paragraph 2:  The benefit of the suspension provided for in 
the present article may be made use of for a period of three 
years counted from the date of adherence to the RECAP. 
 
Paragraph 3:  The percentage of exportation referred to in 
the heading paragraph and in paragraph 1 of Article 14 shall 
be determined by considering the average value obtained 
after initiation of the utilization of the goods acquired in 
the ambit of the RECAP over a period of: 
 
I - two years, in the case of the heading paragraph of the 
present article; 
II - three years, in the case of paragraph 1 of Article 14. 
 
Paragraph 4:  The period of time for initiating the 
utilization referred to in paragraph 3 shall not be longer 
than three years. 
 
Paragraph 5:  That legally constituted entity which 
incorporates goods in a different way to that foreseen in 
the heading paragraph, resells goods before the period 
referred to in sub-headings I or II of paragraph 3 or fails 
to comply with other provisions, shall be obliged to pay 
fine and interest, calculated from the date of acquisition, 
and referring to contributions not made due to the 
suspension referred to in the present article, in the role 
of: 
 
I - taxpayer in relation to the PIS/PASEP-Importation and 
the COFINS-Importation Contributions; or 
II - legally responsible party in relation to PIS/PASEP and 
COFINS Contributions. 
 
Paragraph 6:  In the Receipts for the Sales referred to in 
paragraph 1, the expression "Sale made with the Suspension 
of PIS/PASEP and COFINS Contribution Requirement" must 
appear together with the identification of the respective 
legal provisions. 
 
Paragraph 7:  The suspension provided for in the present 
Article shall be transformed into a zero percentage rate 
once the conditions referred to in the heading paragraph, 
and paragraph 1 of Article 14, have been met. 
 
Paragraph 8:  The legally constituted entity that fulfills 
the commitments set out in paragraph 1 of Article 14 may, in 
compliance with the same conditions established therein, 
make use of the benefit of suspension set out in Article 40 
of Law No. 10.865 dated April 30, 2004. 
 
Art. 16.  Adherence to the RECAP is conditional on the 
legally constituted entity's being in a regular fiscal 
situation as regards federal taxes and contributions. 
 
(Chapters 3-14) 
 
Brasilia, June 15, 2005, 184th year of Independence and 
117th of the Republic. 
 
LUIZ INACIO LULA DA SILVA 
Antonio Palocci Filho 
Luiz Fernando Furlan 
This text shall not substitute that published in the 
Official Gazette of June 16, 2005" 
 
End text 
 
MANGANIELLO