On August 18, 2017, Provisional Measure No. 795 (“MP 795/2017”) was published, providing for alterations concerning the tax treatment applicable to oil and natural gas exploration and development activities, as well establishing a special tax regime for the oil and gas industry.
In summary, among the innovations introduced by MP 795/2017, it is verified:
(I) Regarding Corporate Income Tax (“IRPJ”) and Social Contribution on Net Profit (“CSLL”):
- the possibility of deducting in full from the total expense, in the relevant calendar year, of expenditures in the activities of exploration and production of oil and natural gas, for purposes of calculation of real profit (taxable income) and calculation basis of CSLL, previously provided for in Article 416 of RIR nominally only for Petróleo Brasileiro S.A. (“Petrobras”).
- rules related to the deduction of depletion expenses connected with development activities, and, especially, the possibility of accelerating depletion of assets formed until December 31, 2022, by applying the rate determined by the unit-of-production method (“MUP”) multiplied by 2.5.
(II) Regarding the Withholding Income Tax (“IRRF”) on revenues related to charter or leasing of maritime vessels when the charter/lease and service agreements are executed simultaneously:
- establishment of new maximum percentages for each type of vessel (which are: 70% for vessels with floating systems of production and/or storage and offloading; 65% for vessels with rig systems for drilling, completion, wells maintenance; and 50% for other types of vessels), that shall be observed as of January 1, 2018, for purposes of applying zero tax rate;
- establishment that the charter or lease agreements of vessels related to activities of transportation, handling, transfer, storage and regasification of liquefied natural gas shall represent 60% of the total value of the agreements for the levy of IRRF at zero tax rate;
- detailing of the concept of related legal entities for purposes of compliance with such percentages;
- clarification of the levy of IRRF on the entire remittance of values to foreign charter company benefiting from privileged fiscal regime or domiciled in a low tax jurisdiction;
- bringing express provision that the application of those percentages does not encompass the reclassification of charter or lease agreement for purposes of CIDE and PIS/Cofins-imports;
- recognition of the retroactive application of percentages previously fixed by Law No. 13.043/2014 to taxable events that occurred until December 31, 2014 and allowed the payment, in up to 12 instalments, of the difference of IRRF due, with total reduction of ex officio and late payment penalties.
(III) Regarding the taxation of profits of foreign controlled companies:
- amendment of Article 77 of Law No. 12,973/2014, limiting to December 31, 2019, the non inclusion upon the real profit and calculation basis of CSLL of the holding company domiciled in Brazil portion of profits sourced abroad by direct or indirect controlled company or related company, corresponding to activities related to the oil and gas industry in Brazil.
(IV) Regarding the import of goods applied to the oil and gas industry:
- establishment of the special regime for imports with the suspension of federal taxes related to tax events occurring until July 31, 2022, relating to goods destined to activities of exploration, development and production of oil and natural gas and other hydrocarbons, as long as such goods remain in Brazil on a permanent basis. Such regime will also apply to the import or acquisition in the local market of raw materials, intermediate products and packaging material to be used in these activities. The qualification for the benefits under the special regime is still pending for regulation and it will be applicable as of January 1, 2018.
In addition to MP 795/2017, also published on August 18, 2017was Decree No. 9,128 (“Decree”), which extended the term of REPETRO up to December 31, 2040. By means of such Decree, new rules applied to REPETRO were introduced as well as the express possibility of migration of goods imported under this regime until December 31, 2017, to the new system from the year 2018.