Opinion: Brazilian Tax Amnesty and Missed Opportunities

Opinion by Amit Ramnani

RIO DE JANEIRO, BRAZIL – I believe the current Brazilian tax amnesty is the final chance for expats and Brazilian residents to get up to date and avoid devastating fines if identified by the tax authorities (Receita Federal). I find it surprising how many expats are totally unaware of this amnesty and its implications even though it has featured regularly in national media.

The amnesty (or ‘RERCT’) provides a window until the end of July for taxpayers to regularize any undeclared overseas accounts and applies to anyone who was a tax resident in Brazil in June 2016. The total penalty is equal to 35.25 percent of undeclared assets which is the highest of all Latin American amnesties.

Several expats in irregular positions have sought advice to understand whether or not they were required to enter the amnesty and some have calmly accepted the terms of the amnesty and paid their fines to Receita. I’ve heard that some expats have panicked and resorted to procrastination, hoping that the ‘problem’ will simply disappear!

Inaction will only result in more severe penalties being imposed in the future and many tax lawyers believe the government may impose fines of up to one hundred percent of undeclared overseas assets if they identify tax evaders.

So how will Receita have access to overseas account data of its residents? The OECD, in its efforts to reduce global tax evasion, has implemented the automatic exchange of information, to which more than 100 countries have signed up. As a result, from 2018, Brazil will have access to information on many undeclared accounts held by Brazilian residents.

For those who dare underestimate the Receita Federal, it has one of the most efficient IT systems in the world which is why the cash-strapped government can depend on the sheer might of their machinery to obtain more revenue especially as there is an estimated undeclared R$400 billion (US$125 billion) held overseas by Brazilian residents.

On one hand, I understand the resentment, especially during a period when politicians are being exposed for corruption. However, taxation is all about collective responsibility hence evasion is neither an ethical nor a legal option. There are plenty of ways for expats to structure their finances legally to become more tax-efficient.

I do believe the Brazilian government should have approached this differently by offering a lower penalty for repatriated funds, which are invested into sustainable projects like clean energy or startup funds.

Surely this would have provided a much needed stimulus during a challenging economic climate. Instead, the amnesty is highly inflexible with only one regularization option and a fast approaching deadline.

* Amit Ramnani is an expatriate financial planner at Ipanema Wealth in Rio de Janeiro.