On 23 September 2014, the Brazilian Ministry of Finance signed an Intergovernmental Agreement (IGA) with the United States for the automatic exchange of certain tax information of Brazilian and U.S. taxpayers. This IGA supplements the Tax Information Exchange Agreement entered into by both countries in 2007 and enacted by presidential decree in 2013 to include additional requirements of the U.S. Foreign Account Tax Compliance Act (FATCA).
Under the IGA, Brazilian financial institutions must report certain information regarding accounts of U.S. taxpayers maintained at financial institutions in Brazil to the Receita Federal Brasileira, the Brazilian equivalent of the U.S. Internal Revenue Service (IRS), who in turn will report that information to the IRS. In exchange, the Receita Federal Brasileira will receive information from the United States that U.S. financial institutions currently report to U.S. taxing authorities on accounts held by Brazilian residents, including certain information on bank accounts maintained by Brazilian residents in the United States. According to a release from the Brazilian Ministry of Finance, such exchange of information will be done respecting data privacy by both parties.
The FATCA was enacted by the United States to prevent offshore tax evasion by “U.S. persons.” FATCA requires non-U.S. financial institutions (FFIs) such as banks, custodians, investment entities, and certain insurance companies to register with the IRS, obtain a Global Intermediary Identification Number, perform due diligence to identify U.S. accounts and report certain information about those accounts either to the IRS directly or to local taxing authorities, depending on whether there is an IGA in place and what type of IGA is in place between the United States and partner jurisdiction. Non-compliant FFIs that do not register and do not comply with the due diligence and reporting requirements of FATCA face a 30% withholding tax on receipt of certain payments of U.S.-sourced income.