On March 2, 2017, the Brazilian Internal Revenue Service (“Internal Revenue Service”) announced its tax audit program for calendar year 2017 as well as the program’s results for calendar year 2016.

New for this calendar year, the tax audit program will include the following:

i. An audit for tax evasion related to the exemption of paper: The Internal Revenue Service will audit the destination of exempted paper to verify that it has not been redirected for purposes others than the exemptions pursuant to the Federal Constitution.

ii. An audit of any set-out of operations related to the payment of social security contributions: In addition to tax evasion related to the improper choice for the simplified taxation system (the “Simples Nacional”), which was provided in the previous tax audit program, the Internal Revenue Service intends to audit: (i) retirements related to environmental risks without the corresponding payment of the contribution to RAT by the employers; (ii) legal entities that sell rural products; (iii) cases of nonpayment of social security contribution levied on gross revenue (“CPRB”) by legal entities that benefit from the nonlevy of social security contribution on the payroll; (iv) offset of social security contribution debts with nonexistent tax credits; and (v) improper utilization of the grade of labor inability derived from the work environment’s risks (“GILRAT”) rate in the contribution return (“GFIP”).

iii. An automatic assessment of divergences between the WHT return (“DIRF”) and payment voucher (“DARF”): There will be an automatic assessment of existing divergences of Withholding Income Tax (WHT) disclosed in DIRF and paid through DARF.

The following proceedings from the tax audit program for 2016 remain in the program for 2017:

i. Tax planning related to the corporate restructurings with goodwill and equity investments funds and professional image rights

ii. Taxation levied on incomes derived from foreign-controlled and affiliated companies

iii. Tax evasion regarding the exempt distribution of profits

iv. Tax evasion on the cigarette and beverage industries

v. Nonpayment of income tax by an independent professional on a monthly basis (the “carnê-leão”)

vi. Nontaxation of revenues based on divergences between gross revenues and electronic invoices

vii. Nontaxation of revenues based on evidence of inconsistent financial operations

It should be noted that the tax audit program makes reference to the extension of agreements for the exchange of tax information between countries, including the Decree No. 8,842/2016, and to the Internal Revenue Service’s intention to identify the amounts not disclosed and not included in the Special Regime for Monetary and Tax Regulation (“RERCT”).

Finally, the Internal Revenue Service intends to conclude ongoing audit proceedings related to the Lava Jato, Ararath and Zelotes special audit operations.