Taxation of Mining Activities in Brazil
ANALYSIS OF CURRENT SITUATION AND OF
CHANGES PROPOSED FOR TAX REFORM
PRESENTATION
The National Department of Mineral Production DNPM is pleased to make available to the mining industry, and to all interested parties, the publication Taxation of Mining Activities in Brazil Analysis of Current Situation and of Changes Proposed for Tax Reform.
At this very moment when tax reform is under discussion in National Congress, this publication brings to the fore elements designed to promote the understanding and to facilitate the debate of relevant matters, thus striving to build up a tax policy in line with the national interest and the reality of the growing globalization of the economy.
This is an analytical work, of an informative character, designed to provide a global outlook of fiscal policy, with emphasis on the incidence of taxes, fees, contributions etc., as well as on the government incentives available to the mining industry.
This publication is not the final word on the subject, but attempts to register the latest events related to the tax reform process, now under discussion, taking 1999 as a guideline, updated until end-November 1999.
JOÃO R. PIMENTEL
General Director
National Department of Mineral Production
SUMMARY
The reform of the national tax system is under study at the National Congress. It is said that the system in force is complex, that the tax burden is high, that the possibilities for tax-evasion are wide.
The interest raised by the subject led DNPM to sponsor this study, which, on the one hand, analyses the current situation of taxation incident on mining and existing fiscal incentives, and, on the other, dwells into the changes that are being proposed.
In Brazil, the same tax treatment in force for all economic activities apply to mining. However, in addition to the generally applicable taxes, there are specific charges applying to mining activities, such as fees levied on the exploration stage, in addition to the payment of financial compensation for the exploitation of mineral resources.
PRESENT TAX SYSTEM
FEDERAL TAXATION
The taxes within the competence of the Union are listed below:
- Import tax (II). In the case of mineral products, the rates of this tax vary from 3% to 9%, being 5% for ores and their concentrates, and 7% for most other products.
- Export tax (IE). Does not apply to exported mineral products.
- Tax on industrialized products (IPI). It also does not apply to mining activities. However, its transformation into a federal rate of the "value-added tax" (the modified ICMS) may affect taxation of mineral products.
- Corporate income tax (IRPJ). In most cases, the basis for assessment is the net profit for the fiscal year, with adjustments as provided for in legislation. The general tax-rate is 15%, with an additional 10% levied over that part of gross profit, monthly assessed, that exceeds 20%.
- Income tax withheld at the source (IRRF). In the case of remittances abroad of interest on commissions and profits paid, credited, delivered or remitted, the rate is of 15%. Dividends, bonuses and other forms of profit distribution, whether paid or credited to individuals or corporations residing and domiciled in the country or abroad, are not subject to IRRF withholding nor shall be taken into account when calculating the income tax of their beneficiaries.
- Income tax on credit, foreign-exchange and insurance operations (IOF). This tax covers several situations. In the case of foreign-exchange operations, most transactions have either a zero rate or are exempt.
Social welfare financing, among other resources, is fulfilled by the following contributions:
- COFINS. Its rate is 3% on the gross monthly revenue, except for exports, which are exempt;
- PIS/PASEP. The rate is 0.65% on the monthly billing (private and public companies), again exempting exports;
- Social contribution on net profit (CSLL). It has a rate of 12% on net profit of the fiscal year.
The main ones are social security (average of 20% over salaries and other emoluments, with an additional contribution paid by employees, amounting to 8% of their earnings) and FGTS (8% of salaries and other earnings).
CPMF
The rate of this temporary contribution is 0.38% over all transactions.
States and Federal District Taxes
ICMS is the most important source of tax-excision of the States and the Federal District (Brasília). This tax applies over all industrial, commercial and transportation activities. The basic rate for domestic sales is 17%, and exports are exempted.
Financial Compensation for the Exploitation of Mineral Resources (CFEM)
The value of CFEM varies from 0.2 and 0.3% of the net sales of mineral products. For most mineral products, the rate is 2%. Out of the amount collected, 65% are earmarked for the municipalities where production takes place, 23% for the States or the Federal District, and 12% to DNPM. The latter, in turn, must allocate 2% to environmental protection, through IBAMA.
Land owner royalty
The royalty paid to the land owner amounts to 50% of the federal royalty (CFEM) if the land does not belong to the concessionaire.
Annual Tax per Hectare
The annual tax is 1 fiscal reference unit (UFIR) per hectare of the area covered by the exploration permit, which increases to 1.5 UFIR when the license is extended (1UFIR = US$ 0.60 - March 2000).
International Comparison
Two recent studies show that Brazil is in a favorable position, concerning taxation of mining activities, even though it may be improved as regards an excessive tax burden over revenues.
Fiscal Incentives
Federal Incentives
The Federal Government incentive policy is based on incentives aimed at fostering development of specific areas, such as exports, infra-structure, the modernization of industry and regional development. Federal incentives are a part of the special export programs (BEFIEX), of the integrated sectoral programs (PSI), of the industrial technology development programs (PDTI), along with the regional incentives in the scope of SUDAM, SUDENE and GERES, covering North, North East regions and Espírito Santo State.
States Incentives
Fiscal incentives in force at state level involve the ICMS, and they are granted in sever-
al ways: exemption, deferral, assumed credit, suspension or reduction of the assessment basis.
Review of the National Tax System
Proposal Presented by the Executive Power
The most important changes contained in Proposal of Amendment to the Constitution No. 175, originally presented in 1995, are as follows:
- extinction of the tax on industrialized products (IPI);
- creation of a Federation tax, to be shared among the Union, the States and the Federal District, with participation of municipalities in the proceeds from the col-lection, on the circulation of goods, merchandise, and on the provision of services of any nature ("value-added tax");
- creation of a special tax on activities pertaining to petroleum by-products, fuels, lubricants, electric power, tobacco, beverages, motor vehicles, crafts, aircraft, and superfluous goods and merchandise;
- creation of a tax on the movement or transmission of values and credits of financial nature (turning CPMF into a tax);
- collecting social contributions as an additional to "value-added tax";
- addition of a surtax to "value-added tax" in order to provide supplementary finance for elementary public schools.
The main changes contained in the substitute draft are:
- surcharge, among the contributions that the Union may institute, of those pertaining to environmental intervention;
- inclusion of services in the area of incidence of import and export taxes;
- extinction of IPI;
- transfer to the States and the Federal District of the competence to institute rural territorial tax (ITR);
- extinction of the tax on services (ISS);
- creation of a tax on retail sales and on provision of services, as listed in complementary law;
- inclusion of the Union among the beneficiaries of the modified ICMS ("value-added tax");
- creation of a specific tax on operations pertaining to the circulation of motor fuels, as defined in complementary law.
If, on the one hand, there is a simplification of the taxation system by the extinction of IPI and ISS, on the other there is an increase in its complexity due to changes in ICMS ("value-added tax"), to the creation of the special tax and to the transformation of CPMF into a tax (as proposed by the Executive Power), or to the creation of a tax on motor fuels, of a tax on retail sales, and the changes in the taxation of services (substitute draft by the rapporteur). The possibilities of tax-evasion remain unchanged, or may be even broadened, with the in-cidence of tax on retail sales.
Because new taxes are created and those taxes extinct are in fact simply re-organized (IPI into "value-added tax", tax on services into several already existing taxes), and since the universe of taxpayers remains the same, the tax burden will even tend to increase, instead of decreasing.
A positive aspect worth highlighting is the waiver on exports, maintained in the proposed "value-added tax", and established for the tax on retail sales.
A relevant point still to be defined has to do with the incorporation of IPI into "value-added tax" (the modified ICMS) through a federal tax rate. Since mining activities are not subject to payment of IPI, the inclusion of that charge into the new ICMS to be levied to mineral production would mean an increase in the tax burden of the industry.
It should also be mentioned that it is presently under consideration in the Chamber of Deputies a bill of complementary law dealing with the incidence of ICMS over mineral products for export.
CONTENTS
PRESENTATION
SUMMARY
INTRODUCTION
CURRENT SITUATION OF TAXATION OF MINING
ACTIVITIES IN BRAZIL
1. FEDERAL TAXATION
1.1 Federal Taxes
1.1.1 Import Tax (II)
1.1.2 Export Tax (IE)
1.1.3 Tax on industrialized products (IPI)
1.1.4 Corporate income tax (IRPJ)
1.1.5 Income tax witheld at the source (IRRF)
1.1.6 Tax on credit, foreign exchange and insurance operation (IOF)
1.2 Social Welfare: Contributions 12
- Contribution for financing social welfare (COFINS)
- Contribution to PIS/PASEP
1.2.2.2 PASEP
1.2.3 Social contribution on net profit (CSLL)
1.3 Labour-related charges 1.4 Temporary contribution on the movement or transfer of values and of credits and rights of a financial nature (CPMF)
- STATES AND FEDERAL DISTRICT TAXES
- MUNICIPAL TAXES
- FINANCIAL COMPENSATION FOR THE EXPLOITATION OF MINERAL RESOURCES (CFEM) Federal Royalty
- LAND OWNER ROYALTY
- ANNUAL FEE PER HECTARE IN AREA COVERED BY EXPLORATION LICENSE
Tax on operation related to the circulation of goods and on provision of services of interstate and intermunicipal transport and of communication (ICMS)
Inspection
The Critical evaluation of CFEM Federal Royalty
FISCAL INCENTIVES
- FEDERAL INCENTIVES
- FEDERAL REGIONAL INCENTIVES
- STATES INCENTIVES
- MUNICIPALITY-GRANTED INCENTIVES
1.1 Current programs
1.1.1 Special export programs(BEFIEX) until june 3rd, 1993
1.1.2 Integrated sectoral programs (PSI) until june 3rd, 1993
1.1.3 Technological and industrial development programs (PDTI)
1.2 Tax immunity
2.1 Regional investments funds
2.1.1 Capture of resources (income tax)
2.1.2 Resource allocation
2.2 Income-tax exemption, reduction and re-investment incentives
2.2.1 Income-tax reduction incentives (industrial ventures in operations and of interest for the development of the region)
2.2.2 Income-tax exemption and reduction incentives (projects for setting up, modernizing, upgrading or diversification)
2.2.3 Incentive of income-tax reduction for re-investiment
Other incentives
3.1 ICMS: external operations
3.2 ICMS: internal operations
3.2.1 Assessment basis: exemptions and reductions
3.2.2 Deferral and suspension
3.2.3 ICMS: financing
Bahia
Minas Gerais
Pará
Paraná
Santa Catarina
Espírito Santo
Goiás
- PROPOSAL FOR REFORM PRESENTED BY THE EXECUTIVE POWER
- SUBSTITUTE DRAFT PRESENTED IN THE CHAMBER OF DEPUTIES
- ANALYSIS OF PROPOSED CHANGES
Changes in ICMS ("value-added tax")
Tax on operations pertaining to the circulation of fuels
Limitation of the possibility of tax evasion
Final comment
BIBLIOGRAPHY
SITES CONSULTED 52
ANNEX 1 Proposed reform of the Tax System by the Executive Power
Proposal of Amendment to the Constitution No. 175, of 1995 (Message No. 888, of 1995, of the Executive Power). Changes the chapter on the Nacional Tax System 53
ANNEX 2 Substitute draft by the rapporteur of the Special Committee on the Reform of the Taxation System (Chamber of Deputies)
Proposal of Amendment to the Constitution No. 175-A (of the Executive Power). Changes the chapter on the National Tax System.
(Substitute draft by the rapporteur) 62
APPENDIX Constitution of the Federative Republic of Brazil of October 5, of 1998 (current text). Provisions subject to alterations by the PEC Nº 175, of 1995, and by the substitute draft of the special commission of the Chamber of Deputies (Nº 175-A).
INTRODUCTION
The reform of the national tax system is one of the most important questions that have caught the interest of several segments of society. This interest appears in many ways.
Many people contend that the system in force is complex, due to the multiplicity of taxes in existence, and that the tax burden is very heavy. The existence of cascading taxes (taxes on taxes) is criticized. Analysts also criticize existing legal deficiencies that favor high levels of tax evasion and postponement of tax obligations. A broadening of the taxpaying universe is proposed, so that the individual burden may be reduced without a reduction in total tax collection.
In this discussion, there are pertinent points while others are obviously exaggerated. For example, the issue of the number of taxes. Frequently, those who criticize the ex-cessive number of taxes sustain that in Brazil there are more than fifty different taxes. The problem is that this figure includes taxes that have no relevance whatsoever for productive activities, such as the tax on transmission by death and the fee on ad-vertisement inspection, to mention just two cases. On the other hand, it is true that there is an excess of social contributions and of charges on payroll (CSLL, PIS/PASEP, COFINS, FGTS, social security, trade-union contribution, family allowances, education allowances, SESI/SENAI).
In addition to the purely tax-related matters, there are fiscal issues that need to be faced within the context of the tax reform as a whole and that have to do with the adjustment of public accounts. The reform of the tax system has to be compatible with the need for maintaining, and even increasing the revenues collected by State agents, at their different levels. Also in this context, there are questions relating to the sharing of revenues and the distribution of functions of the State agents involved.
The intensification of discussions on tax reform led the National Department of Mineral Production to sponsor this study, that, on the one hand, analyses the current situation of taxes on mining activities - and existing tax incentives - and, on the other, reviews changes being proposed. This initiative follows suit to a series of studies on the matter, always aimed at providing an updated view of happenings relevant for the mining industry in the domain of taxation.
The interest of DNPM was shown in studies carried out prior to the drafting of the 1988 Constitution (in 1986) and after the new Charter was enacted, that challenged aspects of taxation, then in force, and that were later on modified. Among the most relevant changes, it is worth noting:
- extinction of the sole tax over minerals (IUM) and the inclusion of minerals within the scope of ICMS;
- extinction of the tax on net profit;
- elimination of the additional on income tax due to the States;
- exemption of ICMS on exports of primary and semi-processed mineral goods;
- recognition of foreign companies at the same level as Brasilian Companies.
Since 1995, a proposal of amendment to the Constitution is under study by National Congress, to modify the tax system (Proposal of Amendment to the Constitution No. 175, of 1995). Currently, this proposal is under discussion by a special committee of the Chamber of Deputies, and the rapporteur has already introduced a substitute draft to the original proposal presented by the Executive Power.
CURRENT SITUATION OF TAXATION OF MINING ACTIVITIES IN BRAZIL
In Brazil, mining activities receive the same tax-wise treatment in force for other economic activities. In addition to taxes, there are specific charges levied on mining activities, namely, fees and emoluments due in the exploration stage, and the financial compensation for the exploitation of mineral resources (CFEM or Federal Royalty).
The general principles of the national tax system are defined in Title VI, Chapter I, Section I, of the Constitution. Among those principles, the following are worth noting: Article 145. The Union, the States, the Federal District and the municipalities may institute the following imposts:
I taxes;
II fees, by virtue of the exercise of police power or for the effective or potential use of specific and divisible public service,s rendered to the taxpayers or made available to them;
III benefit charges, resulting from public works.
Paragraph 1. Whenever possible, taxes shall have an individual character, and shall be graded according to the economic capacity of the taxpayers; and the tax administration may, especially to confer effectiveness upon such objectives, with due respect to individual rights and under the terms of the law, identify the property, the incomes and the economic activities of taxpayers.
Paragraph 2. Fees may not have the assessment basis reserved for taxes. Only the Union may institute social contributions, contributions of intervention in the economic order and of the interest of professional or economic categories, as an instrument of its activitity in the respective areas (article 149).
1 FEDERAL TAXATION
The National Tax Code (Law No. 5172, of October 25th, 1966) defines tax as an obligation that has, as its taxable event, a situation irrespective of any specific State ac-tivity, pertaining to the taxpayer (article 16).
The competence of the Union to create taxes is defined in article 153 of the Constitution, which reads:
Article 153. The Union shall have the competence to institute taxes on:
I imports of foreign products;
II exports, to other countries, of national or nationalized products;
III income and earnings of any nature;
IV industrialized products;
V credit, foreign exchange and insurance operations, or operations relating to bonds or securities;
VI rural real-estate property;
VII large fortunes, under the terms of a complementary law.
Paragraph 1. The Executive Power may, observing the conditions and the limits established in law, alter the rates of the taxes enumerated in items I, II, IV and V. 1.1 FEDERAL TAXES
1.1.1 IMPORT TAX (ii)
Import tax is part of the set of taxes having a regulatory nature, that operate as an instrument of governmental policy in the regulation of the flow of imports. The Brazilian economy, that used to be extremely protected, since the beginning of the current decade, started facing a higher level of competition by foreign products.
Regulation No. 58, of January 31st, 1991, established a schedule for the reduction of rates of import tax for circa 1300 products, in the period from 1991 to 1994. For the mineral industry, rates were established ranging from 0% to 15%
In late 1997, as an integral part of the package of measures aimed at the fiscal adjust-ment, tax rates on imported products were increased by three percentile points (Decree No. 2376/1997). In December, 1998, the average tax rate was 17% and the effective average rate was 9.3%. However, tax rates applicable to mineral products vary from 3% to 9% (table 1).
TAXABLE EVENT: Import tax on foreign products has as its taxable event as the entrance of such products in the national territory.
ASSESSMENT BASIS:
- For the specific tax rate: The measurement unit. The unit adopted is defined by Tax Legislation.
- For the ad valorem tax rate: The price.
- Seized or abandoned products (auction): The auction price.
Table 1 shows tariffs in force for the main mineral goods. TABLE 1 COMMON EXTERNAL TARIFF
Source: Department of Foreign-Trade Operations, SECEX/MDIC.
Note: All products listed in the table are IPI exempt, except Portland cement (4% IPI over the assessment basis). All of them are subject to normal ICMS taxation.1 periodicity of assessment: Daily.
period of time for payment: On the same date import statements (DI) are filed.
_________________________________
1 The customs value and import tax (II) make up the assessment basis for IPI. The customs value, II and IPI make up the assessment basis for ICMS.
1.1.2 EXPORT TAX (IE)
TAXABLE EVENT: Shipment of national or nationalized products from the national territory.
ASSESSMENT BASIS:
- For specific tax rate: The measurement unit adopted by tax law.
- For ad valorem tax rate: The normal price the product or its similar, would fetch, at the time of export, in a sale operation under conditions of free competition.
1.1.3 TAX ON INDUSTRIALIZED PRODUCTS (IPI)
The Constitution establishes that IPI (article 153, paragraph 3): I shall be selective, based on the essentiality of the product;
II shall be non-cumulative, and the tax due in each transaction shall be compensated by the amount charged in previous transactions;
III shall not be levied on industrialized products intended for export. It is, therefore, a tax on the value added during the process of industrialization, exports being exempt. In order to determine the incidence of this tax, one deems industrialized a product having been subjected to any operation modifying its nature or purpose, or one that improves such product for the purpose of consumption.
Minerals and concentrates are not subject to payment of IPI.
ASSESSMENT BASIS:
- Internal operations: The value of transaction ex-factory or upon shipment from an industrial establishment or a similar facility.
- External operations: The value used as a basis for the assessment of import tax, or the value that would be used for this purpose, on the occasion of the dispatch of the import statement, added of the amount of this tax and of the currency-exchange charges effectively paid by importers or required from them.
PERIODICITY OF ASSESSMENT: Ten days.
PERIOD OF TIME FOR PAYMENT:
- Cigarettes and beverages: Up to the 3rd working day of the ten-day period subsequent to the occurrence of taxable events.
- Other products: Up to the last working day of the ten-day period subsequent to the occurrence of taxable events.
Income tax and earnings of any nature, in compliance with paragraph 2, item I, of article 153 of the Constitution, "shall be informed according to the criteria of generality, universality and progressiveness, as provided by law".
ASSESSMENT BASIS:
- Real profit: The assessment basis is the real profit in the fiscal year, adjusted by additions, exclusions or compensations determined or authorized by legislation.
- those which had a total revenue above the R$ 24 000 000.00, in the previous calendar year, or proportional to the number of months in the period, when less than 12 months;
- financial institutions;
- with deriving profits, income or capital gains from abroad;
- with fiscal benefits such as tax exemption or reduction;
- which paid their income tax monthly according to the estimate regime in that calendar year;
- factoring.
II the personnel-related costs used for production, including direct supervision, maintenance and guarding of production;
III the costs of lease, maintenance and repair, and depreciation charges related to goods applied in production; IV the amortization charges directly related to production;
V the charges incurred due to depletion of natural resources used in production.
depreciation:
The decrease in the value of assets due to wear and tear, the action of nature and normal obsolescence may be computed, as cost or charge, in each period of assessment.
In any case, the accumulated amount of depreciation quotas may not surpass the cost of acquisition of the asset. The annual depreciation rate (linear depreciation) shall be established as a function of the period of time during which it is likely to be used by the taxpayer, in the production of his income.
As to movable goods, the following accelerated depreciation coefficients (accounting accelerated depreciation) may be adopted, as a function of the daily hours of operation:
One eight-hour shift 1,0
Two eight-hour shifts 1,5
Three eight-hour shifts 2,0
The depreciation quota, to be recorded in each period of assessment, of goods applied in the exploitation of mines, deposits or forests, which may have a total period of assessment lower than the useful life time of such goods, may be optionally determined by the period of concession or of the exploitation contract, or yet of the volume of production of each period of assessment and its relationship with the known expected yield of the mine or the extent of the forest exploited.
In order to encourage the building, renewal or modernization of facilities and equipment, accelerated depreciation coefficients may be adopted, to be in force during established periods of time, for given industries or activities (incentive for accelerated depreciation).
AMORTISATION:
The following may be amortized: I The capital used in the acquisition of rights whose existence or exercise have a limited duration, or of goods whose utilization by taxpayers have a legally or contractually limited period of force, such as: invention patents, formulae and processes of manufacture, copyrights, licenses, authorizations or concessions;
investments in goods that, under law or contract regulating the concession of public service, should revert to the granting power at the end of the period of concession, without indemnity;
acquisition, contract-prorogation or modification costs related to rights of any nature, including the exploitation of commercial contracts;
costs of constructions or improvements in leased or rented goods, or in third-party goods, where there is no right to receive a refund for their value;
the value of contractual rights for forest exploitation; II The costs, charges or expenses, recorded in deferred assets, that will contribute to the generation of results for more than one period of assessment, such as: organizational, pre-operational or pre-industrial expenses;
expenses for prospecting and measuring mines or deposits, including feasibility studies carried out by concessionaires for exploration or extraction of ores, under the technical guidance of mining engineers, if the taxpayer chooses their capitalization;
costs and expenses related to the development of deposits and mines or to the expansion of industrial activities classified as deferred assets until termination of construction or preparation for exploitation;
the part of operational costs, charges and expenses recorded as deferred assets during the period in which the company, at the initial stage of operation, used only partially its equipment or facilities;
interests during the construction and pre-operation period;
interests paid or credited to shareholders during the period prior to the beginning of corporate operations or of the implementation of the venture;
costs, expenses and other charges involved in company restructuring or modernizing. The annual amortization rate is established upon the remaining useful life of the right or of the good, with five years as the minimal accepted period. This period of time also applies to the amortization of costs, charges or expenses recorded as deferred assets. In any case, the accumulated value of annual amortization quotas may not surpass the cost of acquisition of the right or of the good, or the amount of costs, charges or expenses recorded as the deferred assets.
DEPLETION OF MINERAL RESOURCES:
The amount corresponding to the decline in value of mineral resources deriving from their exploitation may be computed as cost or charge, in each period of assessment. The depletion quota will be determined in accordance with the principles applying to depreciation, based upon the cost of acquisition or prospecting of mineral resources exploited. The amount of the depletion quota will be determined bearing in mind the volume of production in the period concerned and its relationship with the known expected yield of the mine, or as a function of the period of concession. These provisions do not apply in cases of exploitation of inexhaustible mineral deposits or of indeterminable exhaustion, such as those of mineral water.
It is worth noting that, in the case of acquisition of mineral rights from third parties, should the cost of acquisition reflect, as it probably will, not only the prospecting costs, but also the expected value of the mineral in situ, the depletion quota would constitute as regards the value of the ore, as a negative royalty. The charge of royalties by the owner of mineral goods has as one of its fundamental justifications the depletion of those resources as they are extracted.
In Brazil, where mineral resources belong to the Union, payment of a royalty or a financial compensation, is required for the exploitation of mineral resources (CFEM). On the other hand, in assessing real profits, the concessionaire is allowed to deduct the depletion quota. Thus, there is a collection and a deduction for the same depletion of mineral resources exploited.
- Assumed profit: It is generally determined by applying 8% on the value of gross monthly revenue; other percentages are used for specific activities (Law No. 9249, of 1995).
Corporations may choose the taxation regime based upon assumed profits, if they had a total gross revenue equal or below R$ 24,000,000.00 in the previous calendar year, or proportional to the number of months of activity therein, when under 12 months.
- Arbitrated profit: It is determined by applying over the gross revenue, when known, the percentiles established for determining assumed profits, added
of 20%.
- General: 15%.
- Additional: 10%. The assessment basis, monthly assessed, exceeding R$ 20,000.00
Will be subject to the incidence of an income-tax additional of 10%.
PERIODICITY OF ASSESSMENT:
- Quarterly: Corporations taxed on the basis of real, assumed or arbitrated profits should carry out quarterly assessments with periods terminating on March 31st, June 30th, September 30th and December 31st of each calendar year.
- Monthly estimate: These corporations may opt for carrying out tax payment and assessment based on monthly estimates, by applying on the monthly received gross revenue the same percentiles used for assumed profits.
- Quarterly assessment: Tax shall be paid in a single quota, up to the last working day of the month subsequent to that of the closing of the period of assessment.
Tax quotas, which may not be smaller than R$ 1,000.00, will be increased by an interest rate similar to the monthly accumulated SELIC fee, calculated from the first day of the second month subsequent to that of terminating the assessment period until the last day of the month prior to that of payment and of 1% in the month of payment.
- Monthly assessment: Until the last working day of the month subsequent to that to which assessment refers.
- Tax balance assessed on December 31st (adjustment returns): Paid in a single quota, until the last working day of March of the subsequent year, if positive, corrected at the SELIC interest rate starting from February 1st until the last day of the month prior to that of payment and of 1% in the month of payment. If negative, it is compensated with the tax to be paid starting from April of the subsequent year. It is grantedthe alternative to request restitution.
Damages may be compensated for in any subsequent period, provided
that compensation does not exceed 30% of the taxable profit in each fiscal year. However, non-operational damages may not be compensated against operational profits.
MICRO ENTERPRISES AND SMALL-SCALE ENTERPRISES
These enterprises may opt for registering with the Integrated System for Payment
of Taxes and Contributions of Micro Enterprises and Small-Scale Enterprises (SIMPLES), becoming subject to the unified monthly payment of federal taxes and contributions listed in paragraph 1 of article 3 of Law No. 9137, of 1996, among which the income tax on corporations.
A micro enterprise is defined as a company which had in the calendar year a gross reve-nue equal to or smaller than R$ 120,000.00. A small-scale enterprise is the company which had in the calendar year a gross revenue higher than those figures and up to R$ 1,200,000.00.
1.1.5 INCOME TAX WITHHELD AT THE SOURCE (IRRF)
ASSESSMENT BASIS:
- Labor earnings: Gross monthly earnings adjusted by deductions provided for in legal instruments.
- Capital earnings (financial applications): The positive difference between the value of sale and that of acquisition.
- Remittances abroad: The gross value of interests on commissions, earnings paid, credited, delivered or remitted abroad.
- Other earnings:
advertisement services provided by juridical persons: the value of earnings obtained from advertisement and publicity services;
remuneration for services rendered by juridical persons: the remuneration received on account of services rendered of a characteristically professional nature. TAX RATES:
- Labor earnings: 15% and 27.5%, depending on the income bracket.
- Capital earnings (financial applications): 20% (fixed income) and 10% (variable income).
- Remittances abroad: 15%.
- Other earnings: 30% (prizes and raffles), 1.5% (advertisement services) and 1.5% (remuneration of professional services).
However, Provisional Measure No. 1924, of October 7th, 1999, provides that, concerning taxable events occurring as of January 1st, 2000, 15% will be the tax rate for income tax withheld at the source on earnings received in the country, by people residing and having their domiciles abroad. Such a situation is valid in the cases provided in Law No. 9481, of August 13th, 1997 (items III and V of article 1), with the wording given by Law No. 9534, of December 10th, 1997 (article 20), in compliance, as far as items VI and VII are concerned, with the provisions of Law No. 9779, of January 19th, 1999(article 8).
Royalties remitted abroad are also subject to payment of income tax, at the rate of 15%.
PERIODICITY OF ASSESSMENT: Weekly.
PERIOD OF TIME FOR PAYMENT: Up to the third working day of the week subsequent to occurrence of the taxable event. In cases of remittances abroad, on the date of occurrence of the taxable event.
1.1.6 TAX ON CREDIT, FOREIGN EXCHANGE AND INSURANCE OPERATIONS (IOF)
ASSESSMENT BASIS:
- Credit operations: The value of loan or financing operation.
- Foreign exchange operations: The amount received in national currency, delivered or made available to the party concerned.
- Insurance: The value of premium.
- Financial applications: The acquisition or redemption value of quotas of investment funds and of investment clubs.
- Credit operations: 1.88% per annum or 0.0052% per day (juridical persons); 6.36 % per annum or 0.0175 per day (individuals).
- Foreign exchange operations: 25%. Most operations have a zero tax-rate or are exempt.
- Insurance: 2% (private health-care insurance); 7% (goods, securities, etc.).
- Financial applications: 0.38%.
PERIODICITY OF ASSESSMENT: Weekly.
PERIOD OF TIME FOR PAYMENT: On third working day of the week following the occurrence of taxable events (tax collection).
Still concerning tax on credit, foreign exchange and insurance operations, a matter of special interest for the mining sector is the constitutional provision in its article 153, regarding gold: Paragraph 5. Gold, when defined in law as a financial asset or a foreign-exchange instrument, is exclusively subject to the tax dealt with in item V of the heading of this article, due on the operation of origin; the minimum rate shall be one per cent, granted the transfer of the amount collected in the following terms:
I thirty per cent to the State, the Federal District or the Territory, according to the origin;
II seventy per cent to the municipality of origin. 1.2. SOCIAL WELFARE: CONTRIBUTIONS
According to article 195 of the Constitution, social welfare will be funded by the whole society, directly and indirectly, as provided in law, by means of resources coming from the budgets of the Union, the States, the Federal District and the municipalities, and from the following social contributions: I of the employer, the company and the entity made equal to it under the law, applying to: a) the payroll and other earnings deriving from work, paid or credited, at any title, to an individualprovision services to it, even without employment link; b) billing or revenues; c) profits;
II of workers and other beneficiaries of social security, not including contributions on retirement and pensions granted under the regime of social security dealt with in Article 201; III on the revenue of prognosis contests.
Paragraph 4 of this article further provides that the law may institute other sources meant to ensure the maintenance or expansion of social security, in compliance with the provision of article 154, I.3
1.2.1. CONTRIBUTION FOR FINANCING SOCIAL WELFARE (COFINS)
ASSESSMENT BASIS:
The value of monthly gross revenue, that is, the total revenues received by the juridical person, irrespective of the type of activity carried out by it and of the account classification adopted for revenues.
The exporting segment may, since October, 1994, benefit from refunds of COFINS (Provisional Measure No. 674). As to taxable events having occurred starting February 1st, 1999, export revenues of merchandise sold abroad are exempt from COFINS (Provisional Measure No. 1858-9, of September 24th, 1999).
TAX RATE: 3%.
In the case of financial entities, that in the past did not integrate the assessment basis of COFINS, the same deductions pertaining to the assessment basis of PIS/PASEP, that consist, basically, of captation expenses and third-party revenues.
The 1 percentile point increase in the tax rate of COFINS (from 2% to 3%) may be deducted from the payment of social contribution on net profit (CSLL)article 8 of Law No. 9718, of November 27th, 1998.
PERIODICITY OF ASSESSMENT: Monthly.
PERIOD OF TIME FOR PAYMENT: Up to the last working day of the ten-day period subsequent to the month in which taxable events have occurred.
1.2.2. CONTRIBUTION TO PIS/PASEP
1.2.2.1. PIS (applicable to private-law juridical persons)
The Social Integration Program was created by Complementary Law No. 7, of 1970, aimed at promoting the integration of workers in the life and development of enterprises. After the 1988 Constitution, the proceeds of its excision started financing the unemployment insurance program.
ASSESSMENT BASIS:
The monthly billing, corresponding to the total of revenues received, irrespective of the type of activity and of the accounting classification of revenues. Starting from October, 1994, the exporting segment counts on the benefit of refund of contributions pertaining to PIS (Provisional Measure No. 674). Currently, export revenues are exempt of contributions to PIS/PASEP (Provisional Measure No. 1858-9, of September 24th, 1999).
TAX RATE: 0.65%.
PERIODICITY OF ASSESSMENT: Monthly.
PERIOD OF TIME FOR PAYMENT: Last working day of the fortnight subsequent to the month in which the taxable event has occurred.
1.2.2.2. PASEP
Likewise, the Program to Setup the Patrimony of Public Workers (Complementary Law No. 8, of December 3, 1970), since 1988, finances from its revenues the unemployment insurance program.
ASSESSMENT BASIS:
- Internal public-law juridical persons and their autonomous organizations: Cur-rent revenues and current and capital transfers received.
- State-owned companies, mixed-economy corporations and their subsidiaries: Monthly billing.
- Non-profit organizations (foundations): Monthly payroll.
- Financial entities classified as State-owned companies contribute to PIS.
- Public-law juridical persons and autonomous organizations: 1%.
- State-owned companies (billing): 0.65%.
- Non-profit organizations (foundations) (payroll): 1%.
PERIOD OF TIME FOR PAYMENT: The same as for PIS.
1.2.3. SOCIAL CONTRIBUTION ON NET PROFIT (CSLL)
Social contributions on net profit were created by Law No. 7689, of December 15th, 1988.
ASSESSMENT BASIS:
The net profit in the fiscal year, adjusted, before income tax provisions; in cases of juridical persons having opted for payment of estimated income tax, the assessment basis for this contribution will be the value cor-responding to 12% of the monthly gross revenue added of the other results and capital gains.
Profits, earnings and capital gains received abroad are subject to CSLL.
TAX RATE: 8%. In the period from May 1st, 1998, to December 31st, 1999, CSLL will be charged with a 4-percentile-point additional (Provisional Measure No. 1807, of January 28th, 1999).
Up to December, 1995, the contribution had a 10% rate. Since it was deduct-ible from the income-tax assessment basis, the effective rate was of 9.09%.4 In 1996, the tax rate was reduced to 8% (effective 7.41% tax rate). From January, 1997, to April, 1998, the value was maintained at 8%, but, since CSLL ceased being de-ductible from the assessment basis of income tax, the nominal and effective
tax rates became equal. From May, 1998, to December, 1999, the tax rate moved up to 12%.
Provisional Measure No. 1858-9, of September 24th, 1999, established that CSLL will be charged with a four percentile-point additional as regards taxable events occurring from May 1st, 1999, to December 31st, 2002.
PERIODICITY OF ASSESSMENT: Monthly
PERIOD OF TIME FOR PAYMENT: Both period of time and system for payment are identical to those for juridical-person income tax.
1.3 LABOUR-RELATED CHARGES
There are many charges applying on payroll. Among them, the most important are:
- Social security: 20% of salaries plus additional benefits.5
- Tenure guarantee fund (FGTS): 8% of salaries plus additional benefits.
- Accident insurance: 3% of salaries plus additional benefits.
- Education allowance: 2.5% of salaries plus additional benefits.
- Christmas bonus (13th salary): One additional salary per worker.
- Annual leave additional: 1/3 of a salary per worker.
- Fine due to unjustified discharge: 40% of the balance of the FGTS account.
- TEMPORARY contribution on the movement or transfer of values and of credits and rights of a financial nature (CPMF)
TAX RATE: 0.38% during the first twelve months of effectiveness of the prorogation, and 0.30 thereafter.
The proceeds of the increase in tax collection deriving from the change in the tax rate, in the fiscal years of 1999, 2000 and 2001, will be earmarked for financing social security.
2 STATES AND FEDERAL DISTRICT TAXES
Taxes within the competence of the States and the Federal District death duties; on operations pertaining to the circulation of goods and on the provision of interstate and intermunicipal transport and communication services (ICMS), and on the ownership of motor vehicles (IPVA)are established in article 155 of the Constitution.
Among them, ICMS should be especially noted, due to its broad coverage of industrial, commercial and transport-related activities. This tax is also the main source of tax revenue of States.
TAX ON OPERATIONS RELATED TO THE CIRCULATION OF GOODS AND ON PROVISION OF SERVICES OF INTERSTATE AND INTERMUNICIPAL TRANSPORT AND OF COMMUNICATION (ICMS)
ICMS is thus defined: Article 155. The States and the Federal District shall have the competence to institute taxes on:
II operations relating to the circulation of merchandise and on provision of interstate and intermunicipal transportation services and of communication services, even when such operations and provisions begin abroad;
Paragraph 2. The tax established in item II shall observe the following:
I it shall be non-cumulative, and the tax due in each operation concerning the circulation of merchandise or the provision of services shall be compensated by the amount charged in the previous operations by the same or by another State or by the Federal District;
II exemption or non-levy, except as otherwise determined in the legislation:
a) shall not imply credit for compensation with the amount due in the subsequent operations or provisions of services;
b) shall bring about the annulment of the credit pertaining to the previous operations;
III it may be selective, based on the essentiality of merchandises and services;
IV a resolution of the Senate, on the initiative of the President of the Republic or of one third of the Senators, approved by the absolute majority of its members, shall establish the rates that apply to interstate and export operations and provision of services;
V the Senate has the power to:
a) establish minimum rates for domestic operations, by means of a resolution on the initiative of one third and approved by the absolute majority of its members;
b) establish maximum rates for the same operations in order to settle a specific conflict involving the interest of States, by means of a resolution on the initiative of the absolute majority and approved by two-thirds of its members;
VI unless otherwise determined by the States and the Federal District, under the terms of the provisions of item XII, g, the domestic rates, for operations concerning the circulation of merchandise and the provision of services, may not be lower than those established for interstate operations;
VII in cases of operations and provisions which earmark goods and services to end-consumers located in another State, the following shall be adopted:
a) the interstate rate, when the recipient is a taxpayer of this tax;
b) the internal rate, when the recipient is not a taxpayer of this tax;
VIII in the case of subitem a of the preceding item, it shall be attributed to the State where the the recipient is located the tax corresponding to the difference between the internal and the interstate rates;
IX it shall also be levied:
a) on the entry of merchandise imported from abroad, even in the case of goods intended for consumption or for the fixed assets of the establishment, as well as on services rendered abroad, and the tax shall be attributed to the State where the establishment receiving the merchandise or services is located;
b) on the total value of the operation, when the merchandise is supplied with services not included in the tax competence of the municipalities;
X it shall not be levied:
a) on operations transferring industrialized products abroad, excluding semi-finished products as defined in a complementary law;
b) on operations transferring petroleum, including lubricants, liquid and gaseous fuels derived there from, and electric energy to other States;
c) on gold, in the cases defined in article 153, paragraph 5;
XI it shall not include in its assessment basis the amount of the tax on industrialized products when the operation, carried out between tax payers and concerning a product intended for industrialization or sale, may represent a taxable event for both taxes;
XII it is incumbent to complementary law:
e) to exclude from levy of the tax, in exports abroad, services and other products other than those mentioned in item X, a;
g ) to regulate the manner in which, through deliberation by the States and the Federal District, tax exemptions, incentives and benefits shall be granted and revoked;
Paragraph 3. With the exception of the taxes dealt with in item II of the heading of the present article, and in article 153, I and II, no other tribute may be levied on operations concerning electric energy, telecommunications services, petroleum by-products, fuels and minerals of the country. ICMS is non cumulative, compensating what is due in each operation or provision with amounts charged in previous ones by the same State of by another or by the Federal District.
In order to determine the tax to be paid, the method of fiscal credit is adopted. The applicable tax rate falls on the total value of the operation or provision, but the taxpayer pays only the difference between the tax thus calculated and the amount that had been charged in previous operations orprovisions.
This method contains a mechanism of self inspection, for taxpayers will pay lower taxes when the credit is high, that is, the more tax that has been paid in previous operations or provisions.
The amount of the tax integrates its own assessment basis, the respective highlight thus representing a mere indication for purposes of control.6
Before the 1988 Constitution was enacted, minerals were subject to special taxation, through the Sole Tax on Minerals (IUM). After the new Constitution entered into force, IUM became extinct and operations with minerals started being taxed by ICMS.
Since IUM provided a special tax treatment for mineral exports, several agreements were signed among States, through the National Council for Financial Policy (CONFAZ), trying to fit the new tax situation of mineral exports now subject to ICMS, whose tax rate in that case was of 13%, to the previous situation under IUM.
There remained, however, the basic problem of applying ICMS to exports. Since, in most cases, the tax may not be transferred to the foreign consumer, it has to be absorbed by the exporter, thus reducing its competitiveness on the international market.
The rule in countries adopting taxes similar to ICMS is to exempt exports. In Brazil, industrialized products had already been favored by this measure (article 155, X, a, of the Federal Constitution). However, exports of primary products (including minerals), of semi-manufactured products, as well as the provision of services abroad, only started being entitled to ICMS exemption after the approval of Complementary Law No. 87, on September 13th, 1996, better known as the Kandir Act (named after Representative Antonio Kandir).
In addition to exempting mineral exports from the payment of ICMS, Complementary Law No. 87 entitles to tax credits, not subject to transfers, merchandises entering the establishment for integration or consumption in the process of production of industrialized products, including semi-manufactured, meant for export (therefore exempt from payment of this tax).
Another point that raised controversy was the right to ICMS credits of merchandises having entered the establishment for use or consumption (examples: drills, explosives, electric power), including those meant to be part of the permanent assets. Previously, under IUM there was no credit system. When minerals started being taxed by ICMS, there was no uniformity of treatment, and there were States that recognized those credits and others that refused them.
Complementary Law No. 87 clarified the issue:
Article 19. The tax is non-cumulative, compensating what is due in each operation pertaining to the circulation of merchandise or provision of inter-state and intermunicipal transportation and communication services with amounts charges in previous operations by the same State of by another.
Article 20. For purposes of the compensation referred to in the previous article, the passive subject is granted the right to credit himself from the tax charged in operations resulting in the entrance or merchandise, real or symbolic, into the establishment, including those meant for its use or consumption or for the permanent assets, or for receiving interstate or intermunicipal transportation or communication services.
Article 33. In applying article 20, the following shall be observed: I only merchandise meant for use or consumption by the establishment having entered it after January 1st, 1998, will be entitled to credit;
II electric power used or consumed in the establishment will entitle it to credit starting from the date this Complementary Law enters into force;
III only merchandise intended to become part of the permanent assets of the establishment having entered it after this Complementary Law enters into force will be entitled to credit. TAX RATES:
- Internal operations and provision of services: 17%.7
- Interstate operations and provision of services: 12% (Resolution No. 22 of the Federal Senate, of May 19th, 1989). However, in operations and provision of services carried out in the South and Southeast Regions having the North, Northeast and Central West Regions and the State of Espírito Santo as their final destination the tax rate is 7%; it belongs to the State where the recipient of the merchandise or service is located to collect the tax corresponding to the difference between the internal and the interstate tax rate.
- Imports: 17%.
- Exports: 13%. Exports of mineral products are exempt.
3 MUNICIPAL TAXES
Municipalities have the competence to establish taxes on urban real-estate and territorial property (IPTU), on transmission, between living parties of real-estate property (ITBI), and on services not covered by ICMS (ISS).
All these taxes may apply to mining companies. However, only IPTU is due on an annual basis, which implies a fixed cost for owners of urban buildings and urban property. The other taxes are occasional.
4 FINANCIAL COMPESATION FOR THE EXPLOITATION OF MINERAL RESOURCES (CEFEM) FEDERAL ROYALTY
The financial compensation for the exploitation of mineral resources (CFEM) was established by the 1988 Constitution: Article 20. The following are property of the Union:
IX the mineral resources, including those of the subsoil;
Paragraph 1. In accordance with the law, the States, the Federal District and the municipalities, as well as organizations of the direct administration of the Union, are granted participation in the results of the exploitation of petroleum or natural gas, hydric resources for the purpose of generation of electric power, and of other mineral resources within the respective territories, on the continental platform, in territorial sea or exclusive economic zone, or financial compensation for the exploitation thereof. According to the understanding of the Office of the Attorney-General of DNPM, CFEM has the legal nature of a public price and the character of an indemnity; herefore it is not a tax. Thus, it is subjected to the rules of civil law,and not to those of tax law.
The way CFEM was established, it has the form of an ad valorem royalty. Law No. 7990, of December 28th, 1989, article 6, determines that "the financial compensation for the exploitation of mineral resources for the purpose of economic use will be of up to 3% of the value of the net turnover resulting from sales of a mineral product, obtained after the last stage of the processing method adopted and before industrial transformation".
Law No. 8001, of March 13th, 1990, defines that net turnover for the purposes of calculating CFEM is the total value of sales revenues, excluding tributes applying to the marketing of the mineral product (ICMS, COFINS, PIS), transportation and insurance expenses. It also establishes that, in the case of mineral substances extracted under the regime of permit of "panning mining" (garimpo), the value of compensation will be paid by the first purchaser.
Finally, Decree No. 1, of January 11th, 1991, article 14, defines that, for purposes of calculating financial compensation:
I the activity of mineral exploitation is the removal of a mineral substance from a deposit, a mine, a salt mine or any other mineral deposit for the purpose of economic use;
II net turnover is the total value of sales revenues, excluding taxes incident on the marketing of mineral product, transportation and insurance expenses.
This article also discriminates the processing methods. These methods are deemed, essentially, those which do not bring about a mineralogical de-characterization of processed mineral substances, or those that do not imply the incidence of IPI to processed mineral substances.
TAXABLE EVENT: Article 15 of Decree No. 1 defines it as the shipment of the mineral product from the areas of the deposit, the mine, the salt mine or any other mineral deposit where it comes from, or from any other establishments, for the purpose of sale, always after the last stage of the processing method adopted and before industrial transformation.
TAX RATES:
- Aluminum, manganese, salt-rock and potassium ore: 3%.
- Iron, fertilizers, coal and other mineral substances: 2%, with the exception
- Precious stones, colored stones susceptible of being cut, carbonates and noble metals: 0.2%.
- Gold: 1%, when extracted by mining companies, garimpo extraction is exempt.
of gold.
- 23% to the States and the Federal District.
- 65% to municipalities.
- 12% to DNPM, that will allocate 2% to environmental conservation in mining regions, through IBAMA (Brazilian Institute of Environment and Renewable Natural Resources) or another relevant governmental body that may come to replace it.
Inspection of the collection of CFEM is one of the functions of DNPM, under article 3, IX, of Law No. 8876 and article 2, IX, of Decree No. 1324, both of 1994.
THE CRITICAL EVALUATION OF CFEM - FEDERAL ROYALTY
The financial compensation for the exploitation of mineral resources (CFEM), provided for in paragraph 1 of article 20 of the Federal Constitution, is a public price due by all miners of mineral deposits. These deposits are property of the Union, separate from the property of the land for purposes of their exploration and exploitation. The law guarantees to the concession holder the property over the results of mining activities, i.e. the mining product.
The principles of sustainable development result in criteria for evaluation of the mineral industry which transcend the mere economic accounting of demand and supply flows of mineral goods, especially as regards the generation of permanent or long-run benefits, which meet the responsibility for the well being of future generations.
The finite character of mineral reserves and the inexorable depletion resulting from their fruition, point out to the need of using part of the revenue generated, during the mining period, to support the development of other activities.
This reinvestment is more urgent, and its effect the more evident, in the communities where the mines are located, because these, in the future, will face the direct consequences of an eventual end of mining activity whithin their boundaries.
In order to make possible the distribution of this revenue, it is necessary, first of all, its appropriation. CFEM is exactly the initial mechanism for this process of appropriation and distribution of revenue. Moreover, with the passage of time, the mining activity will necessarily make for the depletion of the mineral reserve. It means that the activity of the concession holder results in a decrease in the value of the concession, justifying, therefore, the financial compensation which must be paid to the conceding power (the Union).
Still, with regard to its distribution, the division of benefits from CFEM reserves the major share for municipalities and States, assigning to the Union a rather small share, designed to meet the costs of managing and fostering the sector. It should be noted that the legislator expressly vetoed the use of CPMF for covering salaries and the payment of debts, thus making clear that the revenues generated from mineral activities, is to foster the development of other activities that would ensuresustainability and independence to that community once mining activities would come to an end as a result of mine exhaustion.
That is why CFEM has only positive and irrefutable aspects. On the other hand, from the point of view of the entrepreneur, who must take into account all objectives of an economic undertaking, including its social responsibility, this contribution has been criticized because it represents an additional cost, especially felt on exports, for there is no way to compensate the cost differential that it generates. The establishment of fixed rates for CFEM could represent a drawback for that companys competitive edge in international markets.
But in the domestic market its impact on the competitive position of the company would be, in principle, neutral, since it is equal for all producers. Thus, it is easy to conclude, in corroboration with the arguments of several entrepreneurial groups, that the market distortions due to CFEM, are not a result of its incidence but of its evasion.
Returning to the effect of CFEM on exports, the criticism generally made is exaggerated, if we consider that it is the only mechanism of appropriation and direct distribution of a share of revenue generated by mining, amounting to, at most, 3% of net sales, since these sales are exempt from ICMS, which would always be greater than CFEM. It should be noted, moreover, that export activity opens up the way for several incentive mechanisms, as it has been shown in this publication.
There is no doubt that the standard of consumption and well being reached and demanded by any modern society requires the sustainable use of mineral resources. This use has a cost. CFEM is part of this cost that must be internalized by the actors of that society.
5 LAND OWNER ROYALTY
During the exploitation phase, under the concession and licensing regime, if the land does not belong to the concessionaire, a royalty to the land is guaranteed.
The value of this royalty corresponds to 50% of the accrued value of the Federal Royalty (CFEM), as established by Law No. 8901, of July 1st, 1994, and in compliance to Laws No. 7990, of December 29th , 1989, and 8001, of March 13rd , 1990.
The payment to the land owner must be due until the last business day of the month subsequent to the taxable event.
6 ANUAL FEE PER HECTARE IN AREA COVERED BY AN EXPLORATION LICENSE
This fee was instituted by Law No. 9314, of November 14th, 1996, and regulated by Regulation No. 13, of January 16th, 1997, of Ministry of Mines and Energy. Holders of exploration licenses must pay annually 1 UFIR per hectare of the area pertaining to the exploration license, this fee moving up to 1.5 UFIR, should license be renewed. The fee is due until the final exploration report is delivered to DNPM (1 UFIR = US$ 0.60 - as March 2000).
Collection of a fee per unit of area licensed for exploration is fundamentally justified by the fact that the process of authorization and follow up of works requires DNPM to render services and allocate resources for this purpose, therefore befitting the constitutional provision for the collection of this type of tax.
Moreover, there are other reasons that justify this charge. The first is to discourage the establishment of the so-called "mineral latifundia". The second is the payment for the privilege of the exclusivity thus granted. During the effectiveness of the license no other party may have access to the area under the authorization; once a deposit is identified and legal formalities are complied with, the holder of the exploration license has ensured the right to mine.
As the maintenance of authorized areas involves a cost, there is an incentive for exploration to be carried out swiftly, for areas deemed of lesser interest to be discarded and for no reserve of areas to be made only in order to prevent other interested parties from claiming the necessary exploration license.
INTERNATIONAL COMPARISON
One of the most insistently raised challenges to Brazilian taxation has to do with the high tax burden, that would put the country in a disadvantageous position as regards the rest of the world, both in terms of competitiveness of already operating ventures and of the ability to attract new investments. Two recent studies show that, in reality, the position of Brazil, as to taxation applicable to mining activities, is advantageous, although it may be improved in what concerns the excessive amount of taxes over revenues.
mackenzie (1998) analyzed the competitiveness of the tax systems of ten South-American countries.8 The methodology used was a study of the impact of the application of the tax regime of those countries on the realization of potential wealth in 57 deposits of basic and precious metals discovered in Chile since 1970.9 The results were also compared to those provided by the application of the same methodology to four Australian States and four Canadian Provinces.10 The results obtained for the 57 deposits, without taking taxation into account, were:
- average rate of return: 25%;
- average net current value (minimum rate of attractiveness of 10%): U$ 125 million per economic deposit;
- expected export revenues: U$ 92.5 billion.
Considering Australia and Canada, in the comparison of the amount of economic deposits after taxation, Brazil surpassed all the Australian States studied and British Columbia, enjoying the same position as Manitoba, Ontario and Quebec. As to the average net current value, it was higher than those of all Australian States and Canadian Provinces surveyed. The effective tax burden in Brazil was smaller that those of all Australian States and Canadian Provinces (in all cases above 50%).
The second study was carried out by albavera et al, who analyzed the investments
in mining in Latin-America in the 1990s. They based their comparison of tax systems on
the model formulated by the Institute for Global Resources Policy and Management, of the Colorado School of Mines, United States. This model consisted of the creation of two hypothetical projects, one for copper and one for gold, on which the taxation in force in 23 countries was applied, and checking the effects of this taxation on the internal rate of return of projects.
The table below presents the results obtained, showing that the tax regimes in force in Argentina, Bolivia, Brazil, Chile, Mexico and Peru are internationally competitive. Brazil rated 11th in the case of gold and 13th in the case of cooper, before Australia, Canada and the United States.
Source: albavera et al, p. 37.
FISCAL INCENTIVES
Fiscal incentives granted by Government, under the form of total or partial renunciation of its revenue, are designed to develop specific sectors of the economy. It is important to check the forms of fiscal incentives used by government to encourage private investments.
Fiscal incentives used in the past, to foster the industrial sector, and specifically the mining sector, have been eliminated and/or are being reduced as time goes by. After the adoption of a policy geared to the stabilization of the economy and of a model more oriented to market mechanisms, financing and incentives moved on to encourage the modernization and competitive slant of the economy as a whole, and the mining sector was included in the general context of incentives granted to the industrial sector.
The Federal Government incentive policy counts on incentives geared to the encouragement of specific areas, such as exports, infra-structure (transports, ports), industry modernization (technological development and imports of capital goods) and incentives to regional development.
Fiscal incentives granted by States vary according to the interest of each State and depend upon the policy of the day, and sometimes they are geared to specific minerals of the State geological endowment. Incentives are granted or revoked by means of decisions by the States or the Federal District, approved as agreements the National Council for Financial Policy (CONFAZ).
It is worth noting that high tax rates and the complexity of the tax system have been widely criticized by industry. Changes that have taken place and the short periods of validity of several incentives have hampered the understanding of this complex of laws and decrees of the legislation in force.
A description of existing fiscal incentives is presented below, a result of bibliographic research also carried out in the specific sites of consultation of Federal and States governments. Some incentives presented are no longer in forcefor instances the Special Export Program (BEFIEX) and the Integrated Sectoral Program (PSI)but they are still effective for companies that have qualified until June 3rd, 1993.
1 FEDERAL INCENTIVES
Financial instruments pertaining to industrial policy established by Decree-Law No. 2433, of May 19th, 1988, were revoked in 1993. However, projects of companies having been approved until June 3rd, 1993, still count on the incentives contemplated by: a) integrated sectoral programs; b) technological and industrial development programs; and c) special export programs (Program BEFIEX).
1.1 CURRENT PROGRAMS
The application of instruments provided for in those programs was aimed at increasing exports, modernizing the Countrys industrial sector and increasing its competitiveness. This policy was basically developed by means of exemptions and/or reductions of the tax on industrialized products (IPI) and of the import tax (II), and accelerated depreciation for machines and equipment.
1.1.1 Special Export Programs (BEFIEX)until June 3rd, 1993
The benefits listed below were granted to industrial enterprises participating of special export programs, approved until June 3rd, 1993, by the Commission for the Concession of Fiscal Benefits to Special Export Programs (BEFIEX Commission), under terms and conditions established in regulations (Decree-Law No. 2433, of 1988, article 8, items III and V; Law No. 8661, of 1993, article 8; and Decree No. 3000, of 1999, article 470RIR 99):
- Compensation for fiscal loss incurred in one period of assessment by real profits determined in the six subsequent calendar years, irrespective of the distribution of profits or dividends to their partners or shareholders.
- Accelerated depreciation of new machines, equipment, appliances and instruments, made in Brazil, used in the process of production and in activities of technological industrial development.
- It will be calculated by applying 50% of the usually admitted depreciation rate, without prejudice for normal depreciation.
- Exemption or reduction of 90% of the import tax on machines, equipment, appliances and instruments, and their respective attachments, spare parts and tools, meant to integrate the immobilized assets of industrial companies.
- Exemption or reduction of 50% of import tax and tax on industrialized products on the import of raw materials, intermediate products, components and spare parts.
- Exemption of the additional over freight for the renewal of Merchant Marine, pertaining to imported goods.
Companies participating of integrated sectoral programs (PSI), approved by the Council for Industrial Development (CDI) until June 3rd, 1993, may keep on benefiting from advantages established in regulations (Decree-Law No. 2433, of 1988, articles 2 and 3, item IV; Law No. 7988, of 1989, article 1, and Law No. 8661, of 1993, article 13; Decree-Law No. 2433, of 1988, article 3; andDecree-Law No. 3000, of 199, article 490RIR 99):
- Accelerated depreciation of new machines, equipment, appliances and instruments, made in Brazil, used in the process of production and in activities of technological industrial development.
- Reduction of up to 80% of the import tax on machines, equipment, appliances and instruments, and their respective attachments, spare parts and tools, meant to integrate the immobilized assets of industrial companies, and this reduction may reach 90% for ventures located in areas of the Authority for the Development of the Northeast Region (SUDENE) and of the Authority for the Development of the Amazon Region (SUDAM).
- Reduction of up to 80% of import tax and tax on industrialized products on the import of raw materials, intermediate products and components intended for the manufacture of high-technology products.
Technological and industrial development programs are aimed at building corporate capacity in the field of industrial technology, with the aim of generating new products or processes, of improving technological characteristics and reduction of costs of existing products or processes.
Industrial enterprises may obtain fiscal incentives for developing their technological projects, provided that they have been approved by the Ministry of Science and Technology. PDTIs will be formulated according to a model established by the Secretariat for Industrial Development (SDI) of that Ministry, in which the goals of the programs, activities to be carried out, resources necessary, benefits requested and commitments undertaken by the company concerned will be specified.
Fiscal incentives offered contemplate (Law No. 8661, of 1993, articles 3 and 4, Law No. 9532, of 1977, articles 2 and 5, and Decree No. 3000/99, article 504RIR 99):
- Reduction of 90% of the import tax on machines, equipment, appliances and instruments, and their respective attachments, spare parts and tools, intended for use in activities geared to the development of industrial technology.
- Deduction up to the limit of 4% of tax due, of an amount equivalent to the application of the appropriate tax rate of income tax to the value of running costs incurred in activities exclusively geared to the development of industrial technology.
- Accelerated depreciation, calculated by the application of the usually admitted rate of depreciation, multiplied by twowithout prejudice for normal depreciationof machines, equipment, appliances and instruments, and their respective attachments, spare parts and tools, meant to be used in activities of research and development of industrial technology, for the purposes of income tax assessment.
- Accelerated amortization, through deduction as cost or operational expense, of expenditure pertaining to the acquisition of intangible goods, linked to activities of research and development of industrial technology, for the purposes of income tax assessment.
- Credit, in the percentiles indicated below, of income tax withheld at the source pertaining to values paid, remitted or credited to beneficiaries residing or domiciled abroad, as royalties, technical, scientific, administrative or similar assistance, and as specialized technical services.
From 2004 to 2008 20%
From 2009 to 2013 10%
This incentive, offered to the industrial sector for technological research, has very restricted application to the Brazilian mining sector which, by and large, uses equipment and processes of foreign-developed technology.
1.2. Tax immunity
Gold enjoys tax immunity when defined by law as a financial asset or as a foreign-exchange instrument (Federal Constitution, article 153, paragraph 5; Decree No. 2637, article 18, of 1998).
2 FEDERAL REGIONAL INCENTIVES
The Federal Government grants the regional system of fiscal (income tax) and financial (regional investment funds) incentives in the areas of SUDAM (North Region, including the State of Tocantins, the State of Mato Grosso and the West of the State of Maranhão), of SUDENE (Northeast Region, the North of the State of Minas Gerais, in the Valley of the Jequitinhonha River) and of GERES (North of the State of Espírito Santo), to promote the economies of the regions.
The following have been instituted with this objective: 1) regional investment funds, that lend financial support to companies intending to start or expand their operations; 2) special incentives of reduction and re-investment of income tax, that benefits several types of juridical persons (individual companies, limited-liability companies, open-capital companies), meant for small, average and large, national and foreign companies.
2.1. Regional Investment Funds
2.1.1 Capture of resources (Income Tax)
Regional investment funds have as their main source resources from income tax. Juridical persons taxed on the basis of real profits may opt for investing portions of their in-come tax due in fiscal incentives (Decree-Law No. 1376/74, article 1) meant for these funds, allocating the following percentiles within the limit of applications (Law No. 9532/97,article 2):
From 1998 to 2003 30%
From 2004 to 2008 20%
From 2009 to 2013 10%
The choice, during the calendar year, will be made known by means of payment, through a specific tax-excision document (DARF), of part of the income tax of values up to the percentages mentioned below (Law No. 9532/97, article 4, paragraph 1):
From 1998 to 2003 18% for FINOR and FINAM, and 25% for FUNRES
From 2004 to 2008 12% for FINOR and FINAM, and 17% for FUNRES
From 2009 to 2013 6% for FINOR and FINAM, and 9% for FUNRES
(These resources will be deemed available for investment in the juridical persons indicated as beneficiariesor in taxpayers own projects.)
Law No. 8167, of January 16th, 1991, regulated by Decree No. 101, of April 17th, 1991, defines the legislation of income tax (IR) in the part pertaining to fiscal incentives, and sets forth new operational conditions for Funds.
The Investment Fund for the Amazon Region (FINAM) is managed and operated by Banco da Amazônia S.A. (BASA), under the supervision of SUDAM. The Development Fund for the Northeast (FINOR) is managed and operated by Banco do Nordeste do Brasil S.A. (BNB), under the supervision of SUDENE. The Fund for the Economic Recovery of the State of Espírito Santo (FUNRES) is managed and regulated by the Executive Group for the Economic Recovery of the State of EspíritoSanto (GERES).
There are two ways by which investments can be made in these funds. In applications not bound, investors receive quotas of the funds, out of which 50% may be converted into shares. With this investment, juridical persons that have chosen this system start participating in the fund as quota-holders, thus acquiring rights in the funds assets.
Corporations or groups of connected companies holding individually or collec-tively the majority (51%) of the voting equity of beneficiary companies having projects ap-proved by SUDAM, SUDENE or GERES may invest their incentives by directly acquiring securities of such company, without becoming quota-holders of the fund. This is the so-called application linked to a specific project, in which it is granted that 70% of the value of options is allocated to the project, the remaining 30% being directed to the fund and turned into quotas.
2.1.2. Resource allocation
Industrial companies may obtain financial support from regional investment funds for building and modernizing their ventures. Companies willing to obtain these benefits file letters of consultation and present their projects to one of the regional development agencies (SUDAM, SUDENE or GERES), highlighting economic market aspects, social impacts and its importance in the productive chain, in addition to the corporate balance-sheet of the company. The agency defines priorities, analyses and approves projects, follows up and inspects their implementation, authorizes releases of funds and the subscription of shares or debentures, that are made operational by the operating banks.
Approval of projects aimed at the extraction and processing of mineral and fossil substances will depend on the verification that the proponent company holds mining rights for the respective deposits, in compliance with the relevant legislation in force (Mining Code and subsequent legislation). The mining licenses are granted by means of a regulation issued by the Minister of Mines and Energy, in compliance with plans approved by DNPM. In the case of mineral substances for immediate use in civil construction and used as correc-tive agents for agricultural soils, it is necessary to present the specific license issued by the local administrative authority (the mayor), as well as the registration of such license with DNPM.
When analyzing the adequacy of provisions governing the ranking of mining projects for the purposes of benefiting from incentives of FINOR, one notices that "projects aimed solely at extracting mineral or fossil substances shall not be considered" (article 84 of Regulation No. 400/84). It is also worth noting that the value of duly explored mineral deposit (with mining rights) may be entitled to counterpart FINOR resources, provided that assessed according to amounts effectively spent in exploration activities, with Report approved by DNPM (article 89 of Regulation No. 400/84).
vale (1995, p 37-38) favors a flexible enforcement of Regulation No. 400/84, in order to ensure a better application of incentives for the development of the mining sector. He recommends the approval of given isolated mining projects, such as those of ornamental rocks, for the purposes of benefiting from incentives. He also advises that deposit-evaluation studies be carried out, based upon new methods and criteria already developed, in order to determine their value as counterpart of FINOR resources, as well as the acceptance of the value of mining rights as their acquisition cost.
Resources of the funds will be used in the acquisition of debentures, convertible or not into shares, issued by juridical persons having projects approved by the relevant agencies (Decree No. 101/91, article 5) and will be allocated to the coverage of fixed investments.
In the case of the industrial sector, which includes mining, machines, appliances and equipment shall be contemplated. Investments necessary for the development of mineral deposits, as well as forthe preparation of mining facilities and for the item "civil works", depending on the nature of the project, account for an important share of investments in the mineral sector and may not be favoured with resources of investment funds.
When debentures acquired may be converted into shares, conversion may only take place after the project becomes operational. It should also be noted that:
"Debentures shall yield 4% per annum interests payable every 12 (twelve) months, calculated on the monetarily updated principal (by TJLP) and susceptible of capitalization only during the grace period, which expires with the starting of operations of the project. These securities may only be converted into non-voting preferred shares, and this after operations start, which occurs when at least one of the following conditions are met:
- 50% of forecast operational revenues at constant prices;
- 50% of the projected production; and
- 75% of fixed investment implementations approved.
- five years for upgrading, modernization or diversification projects, irrespective of the sector of activity;
- six years for fishery, tourism, telecommunication, temporary agriculture and small-scale animal-husbandry projects;
- seven years for industrial (including mining) agro-industrial and animal-husbandry projects for raising and fattening of beef cattle and buffaloes and dairy production; and
- eight years for long-cycle agricultural projects, including fruit culture, and forestry and reforestation projects."1212
From 1998 to 2003 37.5%
From 2004 to 2008 25%
From 2009 to 2013 12.5%.
This reduction does not prevent investment in fiscal incentives (FINAM, FINOR and FUNRES), as to the amount of taxes to be paid.
Companies willing to qualify for this incentive must file requests with the regional development agency in whose area of action they are operating, requesting the issuance of the exemption statement, to be confirmed at the local offices of the Internal Revenue Service.
These fiscal benefits will become extinct with the start of assessment periods from January 1st, 2014. 2.2.2 Income-tax exemption and reduction incentives (projects for setting up, modernizing, upgrading or diversification) Industrial or agricultural ventures are exempt of income tax and of non-refundable additionals for a ten-year period:
- that started operations, were modernized, upgraded or diversified, in the areas of jurisdiction of SUDENE or SUDAM up to December 31st, 1997 (Law No. 4239/63, article 13; Decree-Law No. 1564/77, article 1; Provisional Measure No. 1614-24/98, article 1, item II);
- corresponding to projects approved or recorded up to November 14th, 1997 (Law No. 9532, of December 10th, 1997, article 3, paragraph 1).
Companies willing to qualify for this benefit must file requests with SUDENE or SUDAM, through the offices of those autonomous agencies in whose areas of action the respective ventures are in place, requesting recognition of the right to the intended exemption, backed up by the documents referred to in article 7 of Decree No. 64214/69.
For modernization, upgrading or diversification projects, only companies whose projects bring about at least 50% increase of their real installed capacity will be contemplated (Decree No. 1564/77, article 1, paragraph 1).
Starting from January 1st, 1998 (Law No. 9532/97, article 3) this exemption becomes a reduction of income tax and non-refundable additionals, in compliance with the following percentiles and periods of time for the actual putting in place of the venture, and also in compliance with other applicable norms in force on the matter:
From 1998 to 2003 75%
From 2004 to 2008 50%
From 2009 to 2013 25%
This provision does not apply to projects approved or filed until November 14th, 1997, for which this tax exemption prevails until termination of the period for concession of the benefit (paragraph 1 of article 3 of Law No. 9535/97).
These fiscal benefits also become extinct for the periods of assessment terminated starting from January 1st, 2014 (paragraph 3 of article 3 of Law No. 9535/97).
2.2.3 Incentive of income tax reduction for re-investment
For the purpose of re-investment, companies which have industrial ventures in operation in the areas of jurisdiction of SUDENE or SUDAM may deposit, with banks BNB or BASA, part of the income tax due by said ventures, calculated on the basis of operational profits, added to 50% of their own resources. The release of such resources, however, will be conditioned to the approval of the respective technical and economic modernization projects or projects of equipment complementation (Law No. 8167/91, articles 1, item II, 19 and 23; Law No. 8191/91, article 4, and Law No. 9532/97, article 2, items I, II and III).
Deduction of income tax for the purposes of re-investment corresponds to:
Until 1997 40%
From 1998 to 2003 30%
From 2004 to 2008 20%
From 2009 to 2013 10%.
Percentiles of this benefits for companies within the area of action of GERES/FUNRES (North of the State of Espírito Santo), dealt with in paragraph 1 of article 2 of Law No. 9532/97, are reduced to:
From 1998 to 2003 25%
From 2004 to 2008 17%
From 2009 to 2013 9%.
These fiscal benefits become extinct with the periods of assessment terminated starting from January 1st, 2014.
In order to qualify for this benefit, companies must exercise this option, in their income-tax returns, and make the deposits corresponding to the tax and to the incentive in the operating banks. Resources deposited, until disbursed by the operating bank, will be remunerated by the long-term interest rate (TJLP)Law No. 9126/95, article 4. This de-
posit must be effected by means of an appropriate tax-excision document, within the same period of time established for payment of the tax (RIR, Decree No. 1041/94, article 622, paragraph 1).
Once payments are made, the company must file with the agency a simple technical and economic project. Once the project is approved, the transfer of funds will be released. This benefit is also and primarily directed to small and medium-sized enterprises.
This possibility may not be used simultaneously with the deduction of income tax of juridical persons for application in regional investment funds (FINOR or FINAM), however, it is compatible with the deduction in the reduction of IR for putting in place, modernization, upgrading or diversification purposes (Decree No. 64,214/69, article 47, paragraph 3, and Normative Opinion CST No. 37/75).
OTHER INCENTIVES
In addition to FINOR and to special incentives, SUDENE also offers investors exemption of the additional over freight for the renewal of the Merchant Marine (AFRMM) and of the tax on financial operations (IOF).
3 STATES INCENTIVES
Fiscal incentives in existence in States have to do with ICMS, and they are granted through different modalities: Exemption, deferral, presumed credit, suspension and reduction in the assessment basis. Such incentives vary according to the interest of each State and they have to be approved unanimously, under the form of agreements, by the National Council for Financial Policy (CONFAZ).
Another modality of incentive used by States is the conversion of ICMS due in subsidized financing for the company owing the tax.
3.1 ICMS: External operations
The increase of the tax burden on mining activities brought about by the tax reform ensuing from the promulgation of the 1988 Constitution, particularly the extinction of the sole tax on minerals (IUM) and the inclusion of minerals in the field of incidence of ICMS, was mitigated by State agreements that allowed a reduction in the assessment basis of the tax for certain exported goods. While these agreements, of limited duration, allowed the tax burden to be maintained at levels compatible with those previously in force, there were certain differences in the establishment of percentiles of reduction, that varied from State to State and the minerals exported.
As we saw before, this situation was modified by Complementary Law No. 87, of September 13th, 1996 (Kandir Act), that excluded minerals exported from the incidence of ICMS, therefore exempting them of payment of this tax.
Agreement ICMS 130/94, as changed by Agreements ICMS 23/95 and 130/98, grants fiscal benefits to operations carried out by companies, based upon the BEFIEX Program. Foreign import operations of machinery and equipment, designed to integrate the permanent assets of industrial establishments to be used in their productive activities, provided that under Program BEFIEX and approved up to December 31st, 1989, may be granted:
- exemption of ICMS, should there be an exemption of import tax, or
- reduction of the assessment basis, proportional to the reduction of import tax.
3.2.1 Assessment basis: exemptions and reductions
Several State agreements granted reductions in the assessment basis of ICMS pertaining to internal operations and provision of services for selected goods, with the aim of maintaining the level of taxation compatible with the one in existence under IUM. One may emphasize that the periods of validity of these agreements have dwindled. It should be noted that most incentives described and analyzed by vale et al (1992) had their periods expired. Few agreements are in force.
Agreement ICM 55/89 established the 1% tax rate for all operations involving gold, from their origin, which is the tax rate in force under IUM. The tax does not apply
to operations involving gold, when defined as a financial asset or a foreign-exchange in-strument.
For the gem sector (precious and semi-precious stones) the Federal District reduced the tax rate of ICMS from 12% to 7%. According to the Agreement ICMS 155/92, the States and the Federal District were authorized to grant reductions in the assessment basis of ICMS of up to 91.67% in internal operations with diamonds and emeralds. The period of validity of the benefit was extended up to April 30th, 2001 (Agreement ICMS 5/99).
In the State of Pará, establishments carrying out internal operations prior to the export of gold and precious and semi-precious stones are granted presumed fiscal credits so that the tax burden ends up in 1%, the use of any other credits being prohibited (Regulation of ICMS of the State of Pará).
According to Agreement ICMS 100/97, the assessment basis of ICMS in shipments of limestone and gypsum in interstate operations was reduced by 60%, operations in-volving limestone and gypsum meant for the exclusive use in agriculture, as soil correcting or recovering agents, as well of natural phosphate. In internal operation shipments, the States were authorized to reduce by 60% the assessment basis, or to grant exemption (ad lib of each State). Agreement ICMS 05/99 extended the period of validity of this benefit to April 30th, 2001.
The assessment basis of the tax on iron ore and pellets is a reduced value of operation so that the tax burden should correspond to an effective 6% in operations pertaining to: 1) shipment of iron ore from the mine to be processed into pellets out of the State; 2) shipment of pellets for industrialization within the State or for sale in the internal market. Taxation does not apply to ore meant to be sent abroad (Regulations of ICMS of the States of Minas GeraisDecree No. 38,104, of 1996and BahiaDecree No. 7691, of 1999).
3.2.2 Deferral and suspension
The State legislation grants yet other fiscal benefits to some specifically considered mineral goods. This happens in cases of deferral an/or suspension of ICMS for those minerals that will undergo processing, industrialization or marketing processes in other establishments. The responsibility for payment of the tax is transferred to the acquirer or recipient, or adjourned until the processed product returns to the sender, payment thus remaining postponed until the new taxable event occurs.
Next, a description is given of the legislation applicable to some mineral goods. For some goods, the legislation is similar to that of other States, while, for others, it is quite specific.
Decree No. 38,911, of July 11th, 1997, of the State of Minas Gerais, grants deferral of ICMS in internal operations on precious and semi-precious stones and similar goods and on precious metals, plated metals or goods plated with precious metals. This benefit is very significant for the gem sector, due to its peculiar operational trait. Thus, the activities of those who buy from the miner and the stone cutter become exempt, the tax being deferred for payment after the last industrial operation takes place within the State. Other States (Goiás and Bahia) were ready to put in place this same mechanisms, in response to the demand of the gem sector. However, these proposes have been halted, awaiting the review of the tax system.
In internal operations between mining establishments, with iron ore used for processing into pellets, payment of the tax is deferred to the moment when the pellets leave the manufacturing establishment. Deferral will be granted by means of a term of agreement signed with the Regional Superintendency of Finances (Regulation of ICMS of the States of Minas Gerais and Bahia). In the State of Pará, deferral occurs in internal operations concerning production and transport of iron ore, taxes being paid on the occasion of shipment of the pig-iron produced.
In the case of gold, too, in internal operations carried out by garimpos, payment of ICMS is deferred. Deferral is interrupted in interstate shipments in which the metal is meant for further industrialization, or in internal shipments addressed to processing establishments.
The incidence of ICMS is also suspended in operations with iron ore and pellets in shipments for embarkation ports for further export or in shipments in internal operations meant for further marketing or industrialization (Regulations of ICMS of the States of Minas Gerais and Bahia).
Deferral applies to the shipment of phosphate rock from an establishment where it has been produced or imported, up to the moment in which shipment bound for another State or for a fertilizer industrial establishment occurs (Regulation of ICM of the State of Minas Gerais, item 22 of Annex II).
In the State of Bahia, the entry of applicable ICMS is deferred (Decree No. 6284/97, updated by Decree No. 7691/99, article 343) in the following cases:
- in shipments of clay carried out by mining companies, bound for establishments developing processing or industrialization activities, in the State of Bahia, up to the moment when shipment occurs, at any title, from the establishment of destination;
- in shipments of sidewalk blocks, cobblestones and pavement dales, carried out by natural persons and sent to taxpayers in the State of Bahia, up to the moment in which the subsequent shipment occurs;
- in incoming shipments of lead concentrate, imported from abroad, upon entrance into processing or industrial establishment in the State of Bahia, up to the moment in which the subsequent shipment occurs, at any title;
- in successive shipments of quartz, within the State, up to the moment in which it enters the industrial establishment.
3.2.3 ICMS: Financing
States offer financial incentives to foster development of industrial activities, by means of financing ICMS paid by companies themselves, i.e., an effective reduction of the tax rate. Most States have such financing programs.
Next we shall survey the situation of the most representative States in Brazilian mineral production.
Bahia
The Development Promotion Program of the State of Bahia (PROBAHIA) finances, in the domains of industry, agro-industry, mining, tourism and electric-power generation, the ICMS of industries operating in the State or having upgraded their plants starting October, 1991. This program was established by Law No. 6335, of October 10th, 1991.
This financing scheme, with 3% per annum interest rates, is based upon the percentile of ICMS generated, varying from up to 50% for projects located in the area of Greater Salvador to up to 75% in the remainder of the State. The monetary correction rate benefits from a reduction in the reference rate (TR): 50% for ventures having started operations up to December 31st, 1996, and 40% for those which started operations up to December 31st, 1998. The maximum period for financing is 6 years, and of 10 years for projects with investments above R$ 400 million.
There is also the concession of the fiscal benefit of the differential of the ICMS tax rate. The State Secretary for Finance exempts from the collection of that differential purchases of fixed assetsfor industries acquired in other States.
Minas Gerais
The Minas Gerais Industrial and Animal-Husbandry Integration and Diversification (Pró-Indústria) offers State incentives to companies to set up, upgrade, retrofit or modernize and rehabilitate their industrial units. The State finances turn-over capital, with funds derived from the ICMS due by the benefiting industrial unit.
In principle, the value of each share of financing corresponds to 50% of the value of monthly due and paid ICMS. Should the project meet certain requirements, this per-centile could increase to 70%. In that case, the period of time for using the financing scheme is of 5 years. Projects having strategic importance or relevant interest for the development of the State may have the period for using the financing scheme extended up to 10 years. Financial charges are: 0% interest rates, financial agents commission of 2.5%, and monetary correction of 18% to 50% of the accumulated variation of IGP-M during the period, according to the geographic location of the venture.
Pará
Law No. 5943/96, regulated by Decree No. 1318/96, that deals with the States incentive policy, in its article 5, grants financial incentives under the form of loans corresponding to up to 75% of ICMS generated by the operational activity of the venture and effectively paid, starting from the operations of approved projects. For already existing ventures, loan granted will be calculated based upon the increase of ICMS generated as a consequence of the approved project and/or on ICMS generated as a consequence of the already existing production, in compliance with the limit of 2% of total ICMS revenue collected in the previous fiscal year.
The period in which incentives may be used may not exceed 10 years (for projects deemed "A" priorities), 7 years ("B" priorities) and 5 years ("C" priorities). The criteria for establishing priorities will be set forth according to the rating obtained, depending on the nature of the venture: social and economic, technological and environmental and spatial. Mining has strong possibilities of falling in priority "A", for it complies to conditions therein referred to, particularly because mining concentrates economic activities in the hinterlands of the State, thus promoting its spatial de-concentration.
Paraná
The Program of Support for Productive Investments, established by the State of Pa-raná Government, grants fiscal incentives for setting up new industries, expansion projects, re-activation of paralyzed industries and modernization of industrial units. In this State, emphasis is given to the postponement of part of the incremental ICMS, aimed at setting up, expanding and modernizing industry.
The industrial establishment itself retains the share of ICMS falling within the Program, in a sort of self-financing, that is, ICMS is not paid, but is later released, through a financial agent, as it happens in other States.
For re-activating paralyzed factories and for start-up projects, as all ICMS is new, the proportion of benefits and conditions to foster industrial investment are:
- industrial establishments located in Curitiba and Araucária may defer 50% of incremental ICMS for a period of up to 48 months, with payments over an equal period;
- industrial establishments located within the job belt (municipalities making up the Greater Curitiba area, except Araucária, Curitiba and São José dos Pinhais) may defer 80% of incremental ICMS for up to 48 months, with an equal period for payment;
- industrial establishments located in Ponta Grossa, Maringá, Londrina and São José dos Pinhais may defer 70% of incremental ICMS for up to 48 months, with a similar period forpayment;
- industrial establishments manufacturing products having no similar in the State of Paraná, having at least 50% of output under this condition, may defer 100% of incremental ICMS, with duration and period of grace identical to those applying to the situations described above, irrespective of their location;
- industrial establishments of the areas of mechanics, electrical and communication materials, transportation material and chemical materials may receive an addition twelve or twenty-four-month period, in addition to those 48 months, if upon termination of the program their purchases of spare-parts and components from establishments located in the State of Paraná have reached at least 40% and 60%, respectively;
- industrial establishments investing over 2.3 million UPF/PR may defer up to 100% of incremental ICMS for up to 48 months, having an equal period for payment, irrespective of their location, provided that they had been previously rated by a technical governmental commission;
- any industrial establishment not necessarily those having incremental ICMS may deduct from the current payment of ICMS, for a twelve-month period, an amount equivalent to 100% of expenditures incurred in research and development, divided in twelve installments, provided that such activities are hired with an official educational or research institutions and technological centers located in the State of Paraná; payment of each deducted installment is contemplated with a forty-eight-month grace period;
- any industrial establishment, even without having incremental ICMS or research and development expenses may credit itself the ICMS paid in the acquisition or transfer of machines and equipment, in the proportion of 10% of the monthly outstanding balance of this tax;
- for expansion projects, ICMS exceeding at least 20% the historical average of the establishment in the last 36 months is deemed incremental; in this case, the part to be retained for payment in a differentiated period also corresponds to the percentiles indicated above.
The State grants incentives for setting up or expansion of industrial and agro-industrial ventures under the Program for the Development of Santa Catarina Enterprises (PRODEC). It is based upon the postponement of payment of parts of the ICMS to be generated by the new project, in which the company itself retains the value of the incentive, by means of the previous concession of a special regime by the State Secretary for Finance.
The basic conditions are as follows:
- Amount corresponding to the incentive (total value of operation): 100% of the value of the projects fixed investment, except the land.
- Percentile of incentive: Maximum 75% of ICMS increment generated exclusively by the new investment.
- Period for use: maximum 120 months or until reaching the amount of incentive, that is, whatever occurs first.
- Period of grace: maximum 48 months, for each release.
- Amortization: each share of the incentive must be totally paid for (amortized) at the end of the grace period.
- f)Interest: maximum 12% per annum.
- Charges of financial agent: analysis commission. Amount to be paid directly to the Financial Agent accredited by PRODEC, for the economic and financial analysis and follow up of project execution.
- Monetary correction: variation of UFIR.
Espírito Santo
The Fund for the Economic Development of Espírito Santo (FUNDES) finances part of the turn-over capital of good-producing companies whose ventures have been deemed relevant for the development of the local economy.
It finances up to 60% of ICMS paid, at the cost of 3% per annum, plus monetary updating corresponding to 25% of the annual variation of INPC, with a term of up to 20 years, ten of which making up the grace period.
Goiás
Law No. 9489, of 1984, establishes program "Fomentar" (Fund for Participation and Encouragement of Industrialization) in the State of Goiás, that operates financing schemes through the non-payment of 70% of generated ICMS, that is used on a monthly basis. The assessment basis for determining the value of financing is the tax generated throughout the duration of the project, with terms for use and payment varying between five and twenty years. Charges on this financing scheme are: no monetary correction, 2.4% interest per annum, 6% emoluments and 10% in time-deposit applications.
The period of validity of the program will terminate December 31st, 1999. In order to continue with this program, the Government will be tabling a bill for the scrutiny of the Legislative Assembly, which proposes the creation of Project Produzir, designed to foster the development of industry, In order to give priority, inter alia, to the use of raw materials produced in the State. This financing scheme is similar to Fomentar. It uses, by means of loans, up to 73% of the ICMS generated every month, but the assessment basis to determine the benefit changes in the case of fixed investments, by multiplying one to five fold, plus the turn-over of one year. The time limit for this benefit is 15 years, and it may not go beyond year 2020. Payment is annual, with an average grace period of 1.5 year, it offers discounts of up to 90% of the financed value, without monetary correction and with 2.4% interest per annum. The program is geared to medium-size and small enterprises.
4 MUNICIPALITY-GRANTED INCENTIVES
Exemption, reduction or apportionment of taxes, such as IPTU (tax on urban real-estate and property), ISS (tax on services), and of tariffs within the competence of municipalities are some of the mechanisms ordinarily used by Brazilian municipalities to attract new ventures.
These exemptions vary from city to city and are on the way of being changed or eliminated, within their spheres of competence, according to the interest of and the policies adopted by the municipal public sector.
Entrepreneurs willing to invest may receive information from officials in charge of promotion within municipal governments.
REVIEW OF THE NATIONAL TAX SYSTEM
One of the issues that have given raise to interest and brought about debate is the one related to updating the tax system in force. The main points challenged have to do with the multiplicity of taxes, with the fiscal burden for those who really pay taxes and with the high level of tax evasion.
These are issues difficult to solve, since the need for adjustment in public accounts, under the pressure of the accelerated increase of the public debt, hampers any initiative geared to a reduction of tax-excision.
Because it is necessary to maintain and even to increase the current level of tax revenue, the reduction of the burden for those who pay taxes will only become feasible as the universe of taxpayers increases and possibilities of tax evasion are limited.
- Extinction of the tax on industrialized products (IPI).
- Creation of a Federation tax, to be shared among the Union, the States and the Federal District, with participation of municipalities in the proceeds of its collection. This tax would apply to the circulation of goods, merchandise, and to the provision of services of any nature (an extended ICMS or a "value-added tax"). This tax would be non-cumulative, it would be charged from taxpayers by applying a global tax rate and it would not cover goods, merchandise and services to be sent or delivered abroad. The share of proceeds of the collection of this tax belonging to the States and the Federal District would be allocated among them according to the place of destination of goods, merchandise or services.
- Inclusion of services in the area of coverage of import tax.
- Creation of a special tax on operations pertaining to petroleum by-products, fuel, lubricants, electric power, beverages, motor vehicles, crafts, aircraft, superfluous goods and merchandise as specified in complementary law and on communication services. This tax would be levied only once in the productive chain.
- Creation of the tax on the movement or transfer of values and credits of a financial nature (turning CPMF into a tax).
- Maintenance of ISS, that would not apply to exports of services abroad.
- Collection of social contributions as additional parts of "value-added tax".
- Creation of an additional element of "value-added tax" for the supplementary funding of public elementary education.
The main constitutional changes contained in the substitute draft to the proposal of amendment presented by Deputy Mussa Demes, rapporteur of the Special Committee of the Chamber of Deputies dealing with the tax reform (Proposal of Amendment to the Constitution No. 175-A), are as follows:
- It adds the possibility of collection of fees for the provision of cleaning, sanitation, lighting and security services in public thoroughfares.
- The Federal Union will be able to create compulsory loans by means of ordinary law, instead of complementary law.
- It adds, among contributions the Union may create, one related to environmental intervention. Social contributions on revenue or on billing, when required from juridical persons, will not apply to exports, but will apply to imports.
- It includes services in the field of coverage of import and export taxes.
- It extinguishes the tax on industrialized products (IPI).
- f)It transfers to the States and the Federal District the competence to create the tax on rural territorial property (ITR).
- It extinguishes the tax on services (ISS).
- It creates a municipal tax on retail sales and provision of services listed in complementary law. This tax will not apply to exports of merchandise, nor to services rendered to a party resident or domiciled abroad; it will apply, however, to the imports of a kind of goods, merchandise and services whose provision had been initiated abroad, intended for non-taxpayers of the modified ICMS ("value-added tax") and of the tax on automotive fuels. Taxation of services is limited to those of lodging and feeding and to those delivered to non-taxpayers of ICMS and of the tax on automotive fuels. The tax rate of this new tax will be of 4% until it is established by law.
- It revokes article 155, paragraph 3, of the Constitution, that determines that, except for ICMS and import and export taxes, no other tax shall be levied to operations pertaining to electric power, liquid and gas fuels, lubricants and minerals from the Country.
- A new Section IV to the chapter on the National Tax System deals with taxes whose revenue must be shared between the Union, the States and the Federal District:
- it includes the Union among the beneficiaries of the modified ICMS; this tax will apply to services in general and not only to interstate and intermunicipal transportation and communication services;
- it creates a specific tax on operations pertaining to the circulation of automotive fuels, as defined in complementary law;
- for these two taxes, for each State tax rate there will be a federal one;
- there is a provision for compensation of the tax applying on acquisitions meant for permanent assets;
- exports of automotive fuels and merchandises, as well as services rendered to recipients resident or domiciled abroad are exempt of payment of tax, but the use of the amountspertaining to taxes collected on previous operations and provision of service is allowed;
- Union tax rates and those of the State and the Federal District shall be levied over the same assessment basis;
- it will be incumbent to the Union to enact regulations and normative administrative acts;
- inspection will be within the competence of States and of the Federal District; inspection by the Union will be supplementary;
- judgement of lawsuits pertaining to taxes will befall the competence of State justice.
- State law may increase or reduce State tax rates of ICMS up to 20%.
- There will be four types of tax rates:
- During the first five fiscal years in which it will be required, Federal and State tax rates will be:
- During the first two fiscal years in which it will be required, interstate tax rates will be of 7% where they correspond to the standard, widened and selective tax rates, in operations originating in Regions South and Southeast and bound for Regions North, Northeast, Center-West and for the State of Espírito Santo, and of 12% in other interstate operations and renderings of service. There will be a progressive reduction of these tax rates up to the fifth fiscal year, and they will disappear after the sixth.
standard;
reduced or widened (according to complementary law);
special (essential goods);
selective, applicable to operations pertaining to the circulation of tobacco and its by-products, beverages, motor vehicles and electric power, and to the provision of communication services, as established by complementary law.
standard: equal or above 15%;
reduced or widened: equal, respectively, to 60% and 140% of the standard tax rate;
special: equal or below 30% of the standard tax rate;
selective: above the widened tax rate.
- This tax will apply only once, from production or import up to final consumption; tax rates may be selective.
- Products covered by this tax will not be subjected to any other tax or contribution, except import and export taxes, and contributions related to environmental intervention and in the economic field.
- The State portion of the tax will be due to the State consuming the product.
- Fluid hydrocarbons at natural state will not be subjected to any tax or contribution, except import and export taxes, and contributions related to environmental intervention and in the economic field.
A It is important to note that the taxation reform is going through the legal procedures of the Chamber of Deputies. The substitute draft by the rapporteur was approved by the Special Committee, remaining only the voting on motions of detached matter (destaques), which already took up five sessions in December 1999.
In parallel with the legal procedures, and reflecting the reactions expressed after the approval of the substitute draft, a tripartite committee was established, with the participation of members of the Special Committee and representatives of the Federal Executive Power and the Secretaries of Finance of the States, with the aim of seeking a conciliation of divergent points and of drafting, if possible, a joint amendment.
During the legislative year of 2000, National Congress shall examine the substitute draft, together with the discussion of the joint amendment, in the course of the voting of the plenary of Congress and Senate. Thus, many changes are likely to occur before its final approval.
The proposals contained in the substitute draft are reviewed herewith, taking into account the basic arguments presented in favor of changes in the existing tax system.
Reduction in the number of taxes and simplification of the system
While there will be an apparent simplification of the system with the extinction of IPI and ISS, in point of fact, it may turn out to become more complex for the following reasons:
- The new ICMS ("value-added tax") will be regulated by the Union, but it will be incumbent to the State justice to judge lawsuits pertaining to this tax; administrative litigations pertaining to the impost shall be resolved by an agency of the Executive Power of the States. Both the States and the Union will monitor the tax. There will be tax rates for the Union (established by law) and for the States (established by the Senate by resolution); and these rates will amount on four types.
- ISS will become extinct, but services will be taxed, depending on the situation, by import tax, by export tax, by ICMS ("value-added tax"), and by tax on retail sales and services.
- A specific and single tax shall be created on activities related to the movement of automotive fuels. It is a partial return to the taxes defined in article 74 of the National Tax Code (among which the sole tax over mineralsIUM), extinguished by the 1988 Constitution.
- Among the new contributions that the Union will be empowered to institute is added that for environmental intervention;
- It is added, as an additional source of financing for activities of the Union as regards social order, a contribution applying over revenues due by juridical persons of public law and by financial institutions and insurance, social security and capitalization companies;
- It is not defined whether social contributions on net profit (CSLL), COFINS and PIS/PASEP will be maintained or not. It would be most desirable to have all social contributions unified into a single charge.
Starting in 1997, with the institution of tax on circulation of merchandise (ICM), to replace the tax on sales and consignments, Brazil adopted a system for levying taxes on sales based upon the added value in each operation, which currently corresponds to the overall standard in force in the other Latin-American countries, in Canada and in the European Union.
ICM was a non-cumulative tax, thus avoiding the incidence of taxes on taxes when levying sequential operations (cascade taxation), and contained a mechanism for self-inspection that worked through a credit system. In each operation, the tax due was the difference between the amount deriving from applying the appropriate tax rate on the assessment basis (that generally was the value of the operation) and the amount corresponding to taxes paid on previous operations. Thus, each taxpayer had an interest in insuring that the proper taxes were registered on previous operations, for otherwise the value that he would have to pay would increase.
The mechanism described above would only fail to operate as expected, if tax evasion were to take place anywhere along the sequence of operations up to the final consumer. But it is precisely at the level of non-taxpaying final consumers that the self-inspection system fails. Since these final consumers are not entitled credits, they often fail to require the entry of the appropriate value of the operation in the invoice, or even the very issuance of an invoice, thus allowing for tax evasion.
The 1988 Constitution maintained, with ICMS, the same system used for ICM, that is, the principle of non-cumulativeness and of the use of credits, while at the same time it widened the scope of the tax by including certain types of renderings of services in its field of coverage.
What is now proposed is the creation of a municipal tax on retail sales. This tax, in addition to having a cumulative effect on sales, since it applies together with ICMS, offers the same difficulties in terms of inspection pointed out for the case of ICM/ICMS applying to non-taxpaying final consumers. As to other existing taxes, there is no change in the current situation regarding possibilities of tax evasion.
One concludes, therefore, that, if on the one hand there is a simplification of the tax system with the extinction of IPI and ISS, on the other there is an increase in its complexity due to the changes introduced in ICMS, to the creation of the special tax and to the transformation of CPMF into a tax (as proposed by the Executive Power), together with the creation of the tax on automotive fuels (substitute draft proposed by the rapporteur), and of the tax on retail sales, as well as to the changes introduced in the taxation of services. The possibilities of tax evasion remain unchanged, and may even increase, with the incidence of the tax on retail sales.
Because new taxes are created and those extinct as a matter of fact are only re-organized (IPI into the federal ICMS; tax on services into several already existing taxes), and the universe of taxpayers remains essentially the same, the tax burden tends to increase and not to be reduced.
One positive aspect that should be noted is the exoneration of exports, maintained in ICMS and established for the tax on retail sales.
Final Comment
- One aspect that still requires a definition, which is of the highest relevance for the mining sector, has to do with the incorporation of IPI into "value-added tax" (the modified ICMS) by means of a federal tax rate. Since the mining sector is not subject to payment of IPI, the inclusion of a Union tax rate in "value-added tax", together with its incidence on mineral production, will result in an increase of the tax burden imposed upon the industry. This is an issue that will be discussed in depth by all interested parties.
- It should be noted that, at the moment, there is in the Chamber of Deputies a Bill of Complementary Law No. 19, of 1999, already approved by the Chamber of Deputies Comitteee of Mines and Energy, proposing that ICMS should be, once again, levied on exported mineral products.
BIBLIOGRAPHY
ALBAVERA, Fernando S. et al. Panorama minero de América Latina: la inversión en la década de los noventa. Naciones Unidas, Comisión Económica para América Latina y el Caribe (Series Medio Ambiente y Desarrollo, 11). Santiago : CEPAL, 1998, 81 p.
BRASIL. Código Tributário Nacional. Organisation of texts, crossed notes and indexes by Juarez de Oliveira, 25th ed., São Paulo : Saraiva, 1996, 669 p.
. Departamento Nacional de Produção Mineral. Mineração no Brasil: informações básicas para o investidor. Brasilia : DNPM, 1996, 85 p.
BRAZ, Eliezer. "Tributação e encargos específicos da mineração". In: Economia mineral do Brasil. (Series Estudos de Política e Economia Mineral, 8). Brasilia : DNPM, 1995, p. 38-40.
. Aspectos de política mineral no contexto internacional: políticas, demanda e tributação (Series Estudos de Política e Economia Mineral, 1). Brasilia : DNPM, 1988. 94 p.
BRAZ-PEREIRA, Eliezer. Aplicação do conceito de renda econômica na tributação da mineração no Brasil. Monograph presented in public open competition for a position of Professor. Campina Grande : Universidade Federal da Paraíba (UFPB), Feb., 1993.
INSTITUTO DE DESENVOLVIMENTO INDUSTRIAL DE MINAS GERAIS. Estado de Minas Gerais: programas de incentivo à atividade industrial (Executive summaries), Xerox copy of printed document, [s.d.], 21 p.
MACKENZIE, Brian W. Competitive mining tax positions in South America. Third international gold symposium. Lima, May, 5, 1998.
MUELBERT, Paulo Georg. Incentivos fiscais à mineração. São Paulo : Ed. Resenha Tributária, 1984, 207 p.
VALE, Eduardo. Aspectos legais e institucionais do setor de rochas ornamentais. (Economic studies on ornamental rocks, v. 1). Fortaleza : Instituto Euvaldo Lodi (IEL), 1995, p. 37-38.
VALE, Eduardo et al. Avaliação da carga tributária incidente sobre o setor mineral. (Series Estudos de Política e Economia Mineral, 6). Brasilia : DNPM, 1992, 204 p.
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ANNEX 1
PROPOSED REFORM OF THE TAX SYSTEM BY THE EXECUTIVE POWER
Proposal of Amendment to the Constitution
No. 175, of 1995
(Message No. 888, of 1995, of the Executive Power)
Changes the chapter on the national tax system.
The Boards of the Chamber of Deputies and of the Federal Senate, in
compliance with paragraph 3 of article 60 of the Federal Constitution,
promulgate the following amendment to the constitutional text:
Article 1. Article 157 is henceforth effective with the following change:
Paragraph 5. It is incumbent on the Justice of the States and of the Federal District, vested with federal jurisdiction at all levels, to prosecute and to judge lawsuits pertaining to the tax dealt with in article 152. Complementary law may institute a special standardization process, under the competence of the Supreme Federal Court or the Higher Court of Justice, as appropriate, decisions of which will be binding."
Article 2. Article 150 is henceforth effective with the following change:
Paragraph 6. Any subsidy or exemption, assessment-basis reduction, concession of assumed credit, amnesty or remission pertaining to taxes, fees or contributions may only be granted by means of specific federal, State or municipal law, for the exclusive regulation of the matters enumerated above or the corresponding tax or contribution.
Paragraph 8. It is forbidden to grant exemptions, assessment-basis reduction or any other fiscal incentives pertaining to the tax dealt with in article 152.
Paragraph 9. Except for taxes dealt with in articles 152, 153, I, II and IV, no other may apply to operations pertaining to electric power, communication services, petroleum by-products, fuels, lubricants and minerals from the Country."
Article 3. Article 151 is henceforth in force with the following wording:
"Article 151. It is forbidden:
I for the Union:
- to institute taxes that are not uniform all over the national territory or implying distinction of preference regarding any State, the Federal District or a municipality, in a manner detrimental to another, admitted the concession of fiscal incentives designed to promote the equilibrium of social and economic development among the different regions of the Country;
- to tax the income of bonds of the public debt of States, the Federal District and municipalities, as well as the remuneration and earnings of the respective public agents, at levels above those established for its own bonds and agents;
- to institute tax exemptions on taxes within the competence of the States, theFederal District and municipalities;
Article 4. Section III of Chapter I of Title VI of the Constitution is henceforth in force with the following wording:
"Section III
The Federation Tax
Article 152. The tax on operations pertaining to the circulation of goods, merchandises and on the provisions of services of any nature shall comply with the following rules:
I it will be shared among the Union, the States and the Federal District;
II municipalities shall participate in the proceeds of its collection as provided in article 158, IV;
III it belongs solely to the Union to legislate on the tax and to enact the necessary complementary acts;
IV it belongs to the States and the Federal District:
- to promote its collection and to carry out appropriate inspection activi-
- to judge administrative and fiscal lawsuits;
ties;
VI an agency shall be created, as provided by law, made up of representatives of the Union, the States and the Federal District, to examine inquiries made by taxpayers, to consolidate the administrative jurisprudence and procedures in a uniform manner, and to discharge other functions that may be attributed to said agency;
VII the tax:
- will be uniform for all goods, merchandises and services, and complementary law may admit the establishment of differentiated tax rates, taking into account their essential character;
- will be non cumulative;
- will apply to imports of goods, merchandises and services from abroad, irrespective of the qualification or legal condition of the importer;
- will not apply to goods, merchandises and services meant for remittance
or delivery abroad, nor to gold in the cases defined in article 153, para-
graph 4;
IX a complementary law:
- will establish the cases of non-application of this tax;
- may provide for the composition of the basic tax rate by different percentiles, one for the Union and another for the States and the Federal District, in compliance with the provisions of item VII, a, and VIII;
- will establish the form of participation of the States and the Federal District in the process of setting forth the tax rates;
- will define its taxpayers;
- will provide for cases of tax substitution when the taxable event has happened or is assumed;
- will discipline the compensation regime of the tax;
- will set the venue of operations pertaining to the circulation of goods and merchandises and of services rendered for purposes of its collection and definition of the agency responsible and for purposes of apportionment of the proceeds of its collection;
- will establish the terms under which taxpayers will be compensated for the valueof the tax provided for in article 156, III;
XI the distribution of the proceeds of this tax collection to its beneficiaries, including that referred to in the previous item, will be guided and supervised by an agency made up of representatives of the Union, the States and the Federal District."
Article 5. Section IV of Chapter I of Title VI of the Constitution is henceforth in force with the following wording:
"Section IV
The Unions Taxes
"Article 153. It belongs to the Union to create taxes on:
I imports of foreign goods and services;
II exports, abroad, of national or nationalized products;
III income and earnings of any nature;
IV operations pertaining to petroleum by-products, fuels, lubricants, electric power, tobacco, beverages, motor vehicles, crafts, aircraft, superfluous goods and merchandises as specified in complementary law, and on communication services;
V credit, foreign-exchange and insurance operations, or those pertaining to non-real-estate bonds or securities;
VI the movement or transfer of financial values or credits;
VII rural territorial property;
VIII large fortunes.
Paragraph 1. The Executive Power is allowed, under the terms and conditions set forth by law, to change the tax rates listed in items I, II, IV and V.
Paragraph 2. The tax provided for in item III will be qualified by the criteria of generality, universality and progressiveness.
Paragraph 3. The tax provided for in item IV will be selective and will apply only once along the productive chain.
Paragraph 4. Gold, where defined by law as a financial asset or as a foreign-exchange instrument, will be exclusively subject to the incidence of the tax dealt with in item V of the heading of this article, due on the occasion of the operation of origin, granted the transfer of the amount of collection in the following terms:
I thirty per cent to the State, the Federal District or the Territory, according to origin;
II seventy per cent to the municipality of origin.
Paragraph 5. The law will set forth the conditions and limits according to which the amount paid in lieu of the tax provided for in item VI will be compensated for by the due value of other federal taxes or contributions.
Paragraph 6. The tax provided for in item VII:
I will have its rates established in a way to discourage the maintenance of unproductive properties and will not apply to small rural properties, as defined by law, where exploited by an owner not possessing another property, working alone or with his or her family;
II may have its institution delegated by complementary law to States or to the Federal District, in compliance with the provisions of the previous item and with the apportionment dealt with in article 158, II;
Article 154. The Union may create:
I by complementary law, taxes not provided for in the previous article, provided that they are non-cumulative and do not have the same taxable events and assessment bases of taxes discriminated in this Constitution;
II should external war be imminent, or should there actually be external war, extraordinary taxes within or without its taxing competence, which taxes would be progressively suppressed, once the causes for their creation cease to exist."
Article 6. Sections V and VI of Chapter I of Title I of the Constitution are henceforth in force with the following wording:
"Section V
State and Federal District Taxes
Article 155. It belongs to the States and to the Federal District to create taxes on:
I the transmission by death (causa mortis) and donation of any goods or rights;
II the ownership of motor vehicles;
Sole paragraph. The tax provided for in item I:
I pertaining to real-estate properties and the respective rights, will belong to the State where the property is located, or to the Federal District, as appropriate;
II pertaining to non-real-estate property, bonds and credits, will belong to the State where the estate is processed, or where the donor is domiciled, or to the Federal District, as appropriate;
III will have the competence for its institution regulated by complementary law:
- if the donor is domiciled or resident abroad;
- if the deceased possessed property abroad, was resident or domiciled abroad or if his or her estate was processed abroad;
Section VI
Municipal Taxes
Article 156. It belongs to municipalities to create taxes on:
I urban real-estate and territorial property;
II the transmission, inter vivos, at any title, per paying deed, of real-estate property, per physical nature or accession, and of real rights on real-estate properties, except those of guarantee, as well as the transfer of rights and their acquisition;
III services of any nature, as specified by complementary law.
Paragraph 1. The tax provided for in item I may be progressive, under the terms of a municipal law, in order to ensure achievement of the social function of the property, and its maximum rates shall be established by a complementary law.
Paragraph 2. The tax provided for in item II:
I does not apply to the transfer of goods or rights incorporated to the assets of a juridical person as part of its capital expansion, nor to the transfer of goods or rights deriving from merger, incorporation, splitting or extinction of juridical persons, except if, in those cases, the main activity of the acquirer is the sale and purchase of such goods and rights, the lease of real estate or the commercial rental;
II it belongs to the municipality where the property is located.
Paragraph 3. Regarding the tax provided for in item III:
I it is incumbent to complementary law to establish its maximal tax rates;
II it will not apply to exports of services abroad."
Article 7. Section VII is hereby added to Chapter I of Title I of the Constitution, with the following wording:
"Section VII
The Apportionment of Tax Revenues
Article 157. It belongs to the States and the Federal District:
I the proceeds of the collection of the Unions tax on income and earnings of any nature, applying at the source, on earnings paid, at any title, by them, their autonomous agencies and by foundations they may come to create and maintain;
II twenty per cent of the proceeds of the tax collection the Union institutes in the use of the competence vested in it by article 154, I.
Article 158. It belongs to municipalities:
I the proceeds of the collection of the Unions tax on income and earnings of anynature, applying at the source, on earnings paid, at any title, by them, their autonomous agencies and by foundations they may come to create and maintain;
II fifty per cent of the proceeds of the collection of the Union tax on rural territorial property, pertaining to properties located in them;
III fifty per cent of the proceeds of the State tax collected on the ownership of motor vehicles licensed in their territories;
IV twenty-five per cent of the share of the tax on operations pertaining to the circulation of goods and merchandises and on the provision of services of any nature, belonging to the State.
Sole paragraph. The portions of the revenue belonging to municipalities, mentioned in item IV, will be credited following the criteria below:
I three quarters, at least, in proportion to the value added in operations pertaining to the circulation of goods and merchandises and in provision of services, carried out in their territories;
II up to one fourth, as provided by State law, or, in the case of territories, federal law.
Article 159. The Union will transfer, out of the proceeds of the collection of taxes on income and earnings of any nature, and of the tax provided for in article 153, IV, forty-seven per cent, as follows:
I twenty-one and five tenths per cent to the Participation Fund of the States and the Federal District;
II twenty-two and five tenths per cent to the Fund for Participation of Municipal-ities;
III three per cent, for use in financing programs for the productive sectors of the Northern, Northeastern and Center-Western regions, through their regional financial institutions, in accordance with regional development plans, granted to the semi-arid region of the Northeast half the resources meant for the region, as the law may provide.
Paragraph 1. For the purposes of calculation of the transfer to be carried out according to the provisions of this article, that part of the tax collected on income and earnings of any nature will be excluded when:
I they belong to the States, the Federal District and municipalities;
II they apply at the source on earnings paid, at any title, by the Union, its autonomous agencies and by foundations it may create and maintain.
Paragraph 2. Complementary law may provide for a special system of apportionment, among the Union, the States, the Federal District and municipalities, including the possibility of partial linkage to specific purposes, for the proceeds of collection of the tax provided for in article 153, IV, applying on petroleum by-products, fuels and lubricants, should the same complementary law provide that the tax dealt with in article 153 will not apply to them.
Article 160. It is forbidden to retain or restrict in any manner the transfer and the use of funds attributed under this Section to the States, the Federal District and to municipalities, including the additionals and increments pertaining to taxes.
Paragraph 1. The interdiction provided for in this article does not prevent the Union and the States from conditioning the release of funds to the payment of its credits, including those due to its autonomous agencies.
Paragraph 2. The value of funds retained due to the provisions of the previous paragraph may not exceed that of credits therein referred to.
Article 161. It belongs to complementary law:
I to define the added value for purposes of the provisions of article 158, sole paragraph, I;
II to establish norms for the delivery of funds dealt with in article 159, particularly criteria for the apportionment of funds therein provided for, aimed at promoting the social and economic equilibrium among States and among municipalities;
III to provide on the follow-up, by beneficiaries, of the calculation of quotas and of the release of the shares provided for in articles 157, 158 and 159.
Sole paragraph. The Court of Accounts of the Union will calculate the quotas pertaining to the funds of participation referred to in item II.
Article 162. The Union, the States, the Federal District and municipalities shall publish, up to the last day of the month subsequent to collection, the amounts of each tax collected, the funds received, the amounts of tax origin, delivered and to be delivered, and the numerical expression of the criteria for apportionment.
Sole paragraph. Data publicized by the Union will be discriminated by State and by municipality; those publicized by the States by municipality."
Article 8. Article 165 of the Constitution is henceforth in force with the following wording:
Article 165.
Paragraph 1. The law that institutes the pluri-annual plan:
I shall establish guidelines, goals and targets of the federal public administration, by region, for capital expenses and others ensuing from them and for those pertaining for continued-duration programs;
II may establish minimal levels of expenditure in priority areas, that will prevail sole during the period to which the plan refers.
Article 9. Article 167 of the Constitution is henceforth in force with the following wording:
Article 167.
IV the linkage of tax revenues to organizations, funds of expenses, except for the apportionment of the proceeds of tax collection referred to in articles 158 and 159, the hypothesis provided for in article 159, paragraph 2, the allocation of resources for the maintenance and development of education, as determined by article 212, and the concession of guarantees for credit operations by means of anticipation of revenues, pro-vided for in article 165, paragraph 8, as well as the provisions of paragraph 4 of this article;
Paragraph 4. It is allowed to bind an organizations own revenues generated by taxes dealt with in articles 152, 155 and 156, and of funds dealt with in articles 157, 158 and 159, I and II, for purposes of providing guarantee to the Union for the payment of debts with it."
Article 10. Article 195 of the Constitution is henceforth in force with the following changes:
"Article 195.
I of the employer, the company and the entity made equal to it under the law, applying to:
- the payroll and other earnings deriving from work, paid or credited, at any title, to an individual provision services to it, even without employment link;
- operations pertaining to the circulation of merchandises and on the provisions of services of any nature, as an additional to the tax dealt with in article 152;
- revenues and billing;
Paragraph 12. The law may establish that the social contribution provided for in item I, a, to be paid by small entrepreneurs, be calculated on the basis of billing and not on payroll.
Paragraph 13. The contribution provided for in item I, c:
I may only be instituted regarding operations and provision of services, of any nature, not subject to the tax dealt with in article 152;
II will be non-cumulative and will not apply to the revenue or billing deriving from the export of goods and services abroad;
III will also be due by agencies and bodies of direct and indirect public administration, at federal, State, Federal District and municipal levels, as provided for in law."
Article 11. Article 212 is henceforth in force with the following change:
"Article 212.
Paragraph 5. Public elementary education will have as a supplementary source of funding resources deriving from an additional to the tax dealt with in article 152."
Article 12. Article 239 is henceforth in force with the following wording:
"Article 239. The Unemployment Insurance Program and the bonus dealt with in paragraph 4 of this article, once met the terms and conditions provided for in law, will be funded with resources from the Fund for the Support of Workers (FAT).
Paragraph 1. The fund referred to in the heading will count with resources derived from the proceeds of social contributions collected dealt with in article 195, I, b and c, as provided for in law.
Paragraph 2. Out of the resources allocated to the fund referred to in paragraph 1, at least forty per cent will constitute a reserve to be used for financing economic development Programs aimed at fostering the creation of employment and income, by means of the National Bank for Economic and Social Development, according to criteria of remuneration that preserve their value.
Paragraph 3. Accumulated assets of the Program of Social Integration and of the Program of Formation of the Assets of Civil Servants are preserved, by maintaining the criteria for withdrawal in situations provided for in specific laws, except for the withdrawal by virtue of marriage.
Paragraph 4. For employees receiving from their employers up to two minimum wages as monthly remuneration, payment is granted of one minimum wage per year, this amount including the earnings of individual accounts, in the cases of those already participating in the programs referred to in the previous paragraph until the date this Constitution was enacted.
Article 13. The complementary law that shall regulate the tax dealt with in article 152 will provide a transition regime, for a period of twelve years, starting from the beginning of its collection, in compliance with the following:
I during the first four years, the apportionment of the parts of the States and of the Federal District shall be made among them in accordance with the taxation system in force before the provisions of this Amendment became effective;
II during the eight subsequent years, a system will be adopted that progressively attributes the proceeds of the collection to the States and to the Federal District, wherever the recipient of merchandises and services be, until the form of distribution provided for in article 152, X, is fully implemented;
III an Equalization Fund shall be created, to last for the transitional period and to be managed by the agency dealt with in article 152, XI, and designed:
- to compensate for possible drops in the share of revenue available to the Union, the States and the Federal District pertaining to taxes modified by this Amendment, as compared to the corresponding share obtained before the taxation system instituted by this Amendment became effective;
- to finance a quota to be distributed to the States and the Federal District in accordance with their respective performances in collecting the tax;
- in article 152, which, for the purposes of item VIII of the same article, will be deemed equal to the additional provided for in the Constitution;
- in article 153, IV, which will not integrate the apportionment basis for purposes of article 159;
- before ninety days have elapsed from publication of the law instituting or increasing them, in compliance with the provisions of the previous subitem;
ANNEX 2
SUBSTITUTE DRAFT BY THE RAPPORTEUR OF THE SPECIAL COMMITTEE ON THE REFORM OF TAXATION SYSTEM (CHAMBER OF DEPUTIES)
Sole paragraph.During the twelve months subsequent to the beginning of the collection of the tax, a maximal tax rate will be established by law, and the Executive Power will be able to reduce it or reinstate it, in order to fit its collection to the revenue of the Union, the States and the Federal District, generated by the currently effective taxation system.
Article 14. The law may establish mechanisms of compensation for beneficiaries of fiscal incentives granted for a fixed period as to taxes that become extinct or are modified as a consequence of this Amendment, in compliance with the following:
I the compensation will be calculated having as a limit its economic equivalence with the benefit that became extinct;
II the compensation will be borne, respectively, by the Union, the States, the Federal District and municipalities, bearing in mind the constitutional competence and the apportionment of taxes, whether extinct or modified, as provided for in the previous taxation system.
Article 15. Laws regulating taxes dealt with in articles 152 and 153, IV, will establish the mechanisms for substitution of fiscal incentives to the Free Zone of Manaus that may be suppressed as a consequence of the extinction of the tax on industrialized products and of the change in the tax on operations pertaining to the circulation of merchandises and on the provision of interstate and intermunicipal transportation and communication services, the period of time established in the ADCT, article 40, being maintained.
Article 16. The taxation system instituted by this Amendment will only become effective on the first day of the year subsequent to that in which the publication of laws regulating taxes dealt with in article 152 and 153, IV, is concluded, the previously effective system remaining in force until such moment.
__________________________________
Publ. in Diário do Congresso Nacional, Aug. 18, 1995, sect. 1, p. 18,857, republ. Sep. 5, 1995, p 21,156.
Proposal of Amendment to the Constitution
No. 175-a, of 1995
(of the Executive Power)
Changes the
chapter on the national tax system.
SUBSTITUTE DRAFT BY THE RAPPORTEUR
Article 1. The below listed articles of the Federal Constitution are henceforth in force with the following changes:
"Article 100.
Paragraph 4. At the option of the creditor, credits indicated in mandamus may be compensated for with his own tax-related debits, duly inscribed as active debt, pertaining to the same public exchequer."
"Article 145.
Paragraph 3. Municipalities and the Federal District may institute fees having as their taxable event the effective provision of services of upkeep, cleaning or lighting of urban public thoroughfares.
Paragraph 4. The exigency of tax and fee may be done in the same notice of entry.
Paragraph 5. Complementary law will establish the form and criteria to be obeyed and will indicate the tax authorities able to requisition from financial institutions information on taxpayers operations.
Paragraph 6. No one will be sued for crimes against the tax order before the respective case is concluded at administrative level."
"Article 148. The Union, through law, may institute compulsory loans to meet extraordinary expenses deriving from public calamity and external war or the imminence thereof.
"Article 149. It is incumbent exclusively to the Union to institute social contributions, of environmental intervention, of intervention in the economic domain and in the interest of professional or economic categories, as action instruments in these respective areas, in compliance with the provisions of articles 146, III, and 150, I and III.
Paragraph 1. Social contributions on billing or on revenue, where required from juridical persons:
I will not apply to exports and will apply to imports, even if carried out by natural persons;
II will not be subject to the provisions of article 150, III, b;
III may not be demanded through cumulative collection, as to the same contributions.
Paragraph 2. Contributions of environmental intervention may have differentiated taxable events, tax rates and assessment bases, according to the economic activity, to the degree of utilization or degradation of environmental resources or to the capability of assimilation of the environment.
Paragraph 3. The States, the Federal District and municipalities may institute contributions, collected from their employees, for funding, for the benefit of the latter, social security and assistance systems.
"Article 150.
III
Paragraph 1. The interdiction contained in item III, b and c, does not apply to compulsory loans and to taxes provided for in article 153, I, II and V, and paragraph 6.
"Paragraph 6. Any subsidy or exemption, reduction of assessment basis, concession of assumed credit, amnesty or remission pertaining to taxes, fees or contributions may onlybe granted by means of specific, federal, State or municipal law, regulating exclusively the matters listed above or the corresponding tax or contribution.
Paragraph 7. The law may attribute to passive subjects of tax obligations the condition of person in charge of payment of tax or contribution whose taxable event is to occur later on, granted the payment of the difference when the assumed assessment basis has a value below the actual one and the immediate and preferred restitution of the amount paid, or paid in excess, when the assumed taxable event does not occur, or, the taxable event having occurred, the assumed assessment basis has a value above the actual one".
"Article 151.
IV to enact provisional measures on tax matters, except as regards taxes dealt with in article 153, I, II and V, and paragraph 6."
"Article 153.
I import of foreign products and services;
II export abroad of national or nationalized products and of services;
VII large fortunes.
Paragraph 1. The Executive Power is allowed, in compliance with terms, conditions and limits established by law, to alter tax rates listed in items I, II and V.
Paragraph 6. The Union may institute, in the imminence or in the occurrence of external war, extraordinary taxes, whether or not within its taxation competence, which taxes will be gradually suppressed, once the causes for their creation no longer prevail."
Article 2. Section IV of Chapter I of Title VI of the Federal Constitution is henceforth in force with the following wording:
"Section IV
Union, State And Federal District Taxes
Article 154. The Union, the States and the Federal District shall collect, in a shared manner, taxes on:
I operations pertaining to the circulation of merchandises and provision of services, even when such operations and provisions initiate abroad;
II operations pertaining to the circulation of automotive fuels, as defined in complementary law.
Paragraph 1. Taxes provided for in items I and II will follow the common norms below:
I they will be instituted and regulated by complementary law;
II the tax rates for each merchandise or service will be uniform all over the national territory;
III to each State tax rate there will correspond a federal one, established by law, admitted, as to the latter, the possibility dealt with in article 153, paragraph 1;
IV States and Federal District tax rates will be established by the Federal Senate, by means of resolutions at the initiative of the President of the Republic or of one third of the senators, approved by three quarters of its membership;
V the following will be susceptible of mutual compensation, in cases and condi-tions provided for in complementary law regulating the tax provided for in item I of the heading:
- the federal portion of both taxes;
- the State portion of both taxes;
- the compensation pertaining to the tax applying to acquisitions for the permanent asset, in compliance with the criteria established therein;
- priority to the repayment of creditor balances that may remain with taxpayers asa consequence of interstate or foreign-bound operations;
VIII the Union, States and Federal District tax rates will be applied on the same assessment basis, admitted a different assessment basis if the federal or State portion of the tax is calculated by means of a specific tax rate;
IX the concession of exemption, fiscal incentive or benefit pertaining to the State portion of taxes is forbidden, except if in order to reduce the creation of creditor balances, in cases indicated in item VI, b;
X it is incumbent to the States and to the Federal District to exercise the inspection, without prejudice to the Unions supplementary inspection, according to criteria of specialization and integration, as provided for in complementary law;
XI an agency within the Executive Power of each State and of the Federal District will resolve administrative controversies pertaining to taxes;
XII it is incumbent to the State justice to judge lawsuits pertaining to taxes;
XIII complementary law shall create a collegiate body with the participation of the Union and, on a majority basis, of the States and the Federal District, with the function, among others that it may determine, of answering queries;
XIV it is incumbent to the Union to enact the regulation and the normative administrative acts, after hearing the body referred to in the previous item.
Paragraph 2. The tax provided for in item I of the heading will also comply with the following:
I of being non-cumulative, compensating what is due in each operation or provision of services:
- in determining the portion due to the States and the Federal District, with the amount collected by them in previous operations and provision of services;
- in determining the portion due to the Union, with the amount collected by it in previous operations and provision of services;
III Federal and States tax rates will be exclusively as follows:
- standard, applicable to all operations and provision of services, except for those mentioned in the other literals of this item;
- reduced and widened, applicable to operations and provision of services to be established in complementary law;
- special, meant to grant more favored treatment to education services, to essential foodstuff as listed in complementary law and to electric power produced by wind and sun sources, by biomass and by small hydroelectric plants;
- selective or specific, applicable to operations pertaining to the circulation of tobacco and its by-products, beverages and electric power and to provision of communication services, as defined in complementary law;
V in interstate operations and provision of services to non-taxpayers or to taxpayers submitted to simplified systems implying the non-utilization of previously paid taxes, the amount of the tax deriving from the application of the State-of-origin tax rate will also be due to the Union, granted the compensation provided for in item I, a;
VI in the case of the previous item, the Union will transfer to the States and the Federal District the proceeds of the tax collection, calculated by the State tax rate, proportionally to the respective collections of the tax;
VII it will apply:
- to the import of goods, merchandises and services, the provision of which had begun abroad and meant to natural or juridical persons, whatever the purpose, the amount of the tax collected through the State tax rate going to the State or to the Federal District where the establishment or residence of the recipient is located;
- on the exploitation, with or without transfer of rights, of corporeal or non-corporeal goods ensuring the use or creation of utilities by electronic means or by any other means;
- to provision of air or maritime transportation services;
- to gold, in the cases defined in article 153, paragraph 5;
- to services of sound broadcasting and of sound and image transmission, received free and without charges;
- the transmission of a security representing the merchandise;
- the transfer of the merchandise to the residence of the holder;
- the receipt, from abroad, of goods, merchandises or services, although the sender of the goods or merchandise and the provider of the service is the recipient;
XI a complementary law:
- shall regulate the attribution dealt with in article 150, paragraph 7, in the case of the tax;
- shall define the compensation regime for the tax;
- shall indicate the place of occurrence of operations and deliveries for the purpose of tax collection and of the definition of the establishment accountable for it;
- shall establish norms on the delivery of funds dealt with in item VI;
- may defer payment of the tax in cases of operations or provisions in which the sending and receiving establishments or the provider and the user are located in the same State, and waive the payment if the following operation or provision consigns the merchandise or service to another State or abroad;
- may determine the non-application of the tax in cases of services that constitute a taxable event of the contribution dealt with in article 193, paragraph 3;
- will not serve as credits for compensation with the amount due in the following operations or provisions;
- will bring about the annulment of credits pertaining to previous operations and provisions, except when the following operation or provision consigns the merchandise or service to another State;
XIV the compensation referred to in the previous item may not mean a reduction of federal transfers to the States, the Federal District and municipalities;
XV tax applying to merchandises and services acquired by producers of fluid hydrocarbons in their natural state will be used in the form provided for in the complementary law dealt with in paragraph 1, I.
Paragraph 3. The tax provided for in item II of the heading is also subjected to the following conditions:
I it will apply only once from the production or import up to final consumption, and its rates may be selective;
II products taxed by it will not be subject to the incidence of any other tax or contribution, except for the taxes provided for in article 153, I and II, and of contributions of environmental intervention and of intervention in the economic domain;
III the State portion of the tax will be due to the State consuming the product, as regulated in complementary law;
IV fluid hydrocarbons in their natural state will not be subject to the incidence
of any tax or contribution, except for the taxes provided for in article 153, I and II, and of the contributions of environmental intervention and of intervention in the economic
domain.
Paragraph 4. Provisions of article 102, paragraph 2, will also apply, as to their effects and effectiveness, to other final decisions on merit by the same Court, reached by at least two thirds of its membership, pertaining to taxes dealt with in this article."
Article 3. Articles 155 and 156 henceforth integrate Sections V and VI of Chapter I of Title I of the Federal Constitution, with the following changes:
"Section V
On States and Federal District Taxes
Article 155. It belongs to the States and the Federal District to institute taxes on:
II rural territorial property;
Paragraph 1.
IV it shall be progressive, and its maximal and minimal rates will be set by the Federal Senate.
Paragraph 2. The tax provided for in item II will have its rates set in such a manner as to discourage the maintenance of unproductive properties, and shall not apply to small rural properties belonging to owners that possess only one farm and exploit it alone or with their families, small properties being defined in law."
"Section VI
Municipal Taxes
Article 156.
III retail sales of merchandises and provision of services as listed in complementary law.
Paragraph 1. The tax provided for in item I:
I may have differentiated rates, according to the location and use of the property, and rates progressive over time or calculated on the basis of the value of the property, as provided for in local law, and its maximum rates shall be established by complementa-
ry law;
II shall not be subject to the provisions of article 150, III, c.
Paragraph 3. The tax provided for in item III:
I shall not apply to exports of merchandises, neither to services rendered to recipients abroad;
II will apply to imports of goods, merchandises and services the delivery of which has initiated abroad, addressed to non-tax payers of the taxes dealt with in article 154;
III as to the taxation of services, it shall apply to:
- lodging and feeding;
- other services, provided to non-tax payers of the taxes dealt with in article 154;
V shall not be subject to exemption or fiscal benefit or incentive;
VII shall be regulated by complementary law that shall also define retail sales and establish deadlines for collection."
Article 4. Articles 157 and 162 will henceforth integrate section VII of Chapter I of Title VI of the Federal Constitution, with the following changes:
"Section VII
On the Apportionment of Tax Revenues
Article 158. It belongs to the municipalities:
II fifty percent of the proceeds of the State tax collection on rural real-estate properties, pertaining to properties located therein;
IV twenty-five percent of the proceeds of the State collection pertaining to the tax on operations related to the circulation of merchandises and provision of services and to the tax on operations pertaining to the circulation of automotive fuels, added of funds attributed to the States under article 154, paragraph 2, VI.
"Article 159. The Union will transfer:
I forty-seven per cent of the proceeds of collection of taxes on income and earnings of any nature and of its tax collection on operations pertaining to the circulation of merchandises and provision of services as well as of the tax on operations pertaining to the circulation of automotive fuels, as follows:
II of the proceeds of the collection of taxes on imports of foreign products and services, fifteen per cent to the States and the Federal District as provided for in complementary law, proportionally to the annual positive balance of its exports abroad and its imports.
Paragraph 1. For the purpose of calculation of the transfer to be effected in accordance with provisions of item I, the following shall be excluded:
I the portion of the tax collection mentioned in article 153, III, belonging to the States, to the Federal District and to municipalities, as provided for in articles 157, I and 158, I;
II the portion of the federal collection of taxes mentioned in article 154, exceeding by twenty-five per cent the proceeds of the State collection of the same taxes;
III the amount of funds transferred by the Union to the States and the Federal District, as provided for in article 154, paragraph 2, VI.
Paragraph 2. In no case, the assessment basis for the transfers provided for in article 159, I, pertaining to taxes dealt with in article 154, may be lower than twenty-five per cent of the proceeds of State collection of said taxes.
Paragraph 3. To no unit of the Federation may be allocated a portion above twenty-five per cent of the amount referred to in item II, and any amount in excess most be distributed among the other participants, the criterion for apportionment established in this item being maintained for these purposes."
"Article 160.
Paragraph 1. The interdiction provided for in this article does not prevent the Union and the States from making the transfer of resources conditional to the payment of their credits, including those of their autonomous agencies.
Paragraph 2. The amount of funds retained by virtue of the provisions of the previous paragraph may not exceed that of the credits."
"Article 161.
Paragraph 1. In the case of hydroelectric power plants, fifty per cent of the value added will be allocated to municipalities where such plants are in place and fifty per cent to municipalities affected by the reservoir, proportionally to the flooded area.
Paragraph 2. The Court of Accounts of the Union will calculate the quotas pertaining to the participation funds referred to in item II."
Article 5. Article 167, paragraph 4, of the Federal Constitution is henceforth in force with the following wording:
"Article 167.
IV the linkage of tax revenues to organizations, funds or expenses, except for the linkages expressly provided for in this Constitution;
Paragraph 4. It is allowed the linkage of an organizations own revenues generated by taxes referred to in articles 154, 155 and 156, and of resources dealt with in articles 157, 158 and 159, I, a and b, and II, to serve as guarantees or counter-guarantees to the Union and for paying debts to it."
Article 6. Article 171 of the Federal Constitution in henceforth in force with the following wording:
"Article 171. The law may define the practices of foreign trade that are harmful to the national economy, and authorize the collection of compensatory rights and the imposition of limitations and sanctions aimed at neutralizing or inhibiting such practices.
Sole paragraph. The collection of compensatory rights and the imposition of limitations and sanctions may reach the practices incurred in starting from the date of publication of the act indicating the beginning of the process of their assessment."
Article 7. The following paragraphs are added to article 193 of the Federal Constitution:
"Article 193.
Paragraph 1. Actions by the Union in the domain of social order and those mentioned in article 239 will have as their source of funding, inter alia, funds deriving from its collection of taxes dealt with in article 154, corresponding to the amount exceeding twenty-five per cent of the proceeds of the State collection of those taxes, added of the proceeds of the collection of contributions referred to in paragraph 3 of this article and article 149, paragraph 1, allocating, at least:
I fifty-seven and five tenths per cent to social security, as mentioned in article 195;
II six and five tenths per cent to public elementary education, as mentioned in article 212;
III twenty-two per cent for the assistance of workers, as mentioned in article 239.
Paragraph 2. Non utilized resources under the previous paragraph shall be used according to criteria established in complementary law, and they may even be used for financing programs aimed at increasing the generation of employment, in addition to those mentioned in article 239, paragraph 1, in compliance with the criteria set forth in this paragraph.
Paragraph 3. Actions dealt with in this article shall have as an additional source of funding a social contribution levied on revenues due by institutions and establishments mentioned in article 192, I and II.
Paragraph 4. The non-cumulativeness, in cases provided for in the previous paragraph, shall be observed by means of the deduction of expenses incurred in procuring financial resources, in accidents and other cases the law may indicate."
Article 8. Article 195 of the Federal Constitution is henceforth in force with the following changes:
"Article 195. Social welfare will be funded by the whole society, directly and indirectly, as provided for by law, by means of resources from the budgets of the Union, the States, the Federal District and municipalities, including those dealt with in the paragraphs of article 193, and from the following social contributions:
Paragraph 4. Complementary law may institute other sources meant to guarantee the maintenance or expansion of social welfare, provided that they are non-cumulative and do not have taxable events or assessment bases identical to those of existing taxes.
Paragraph 6. The social contributions dealt with in this article and in article 193, paragraph 3, are not subject to the provisions of article 150, III, b.
Article 9. The following paragraph is henceforth added to article 203 of the Federal Constitution:
"Article 203.
Sole paragraph.The Union shall institute program for the guarantee of minimal income meant to ensure the subsistence of low-income families to be implemented through agreements with the States, the Federal District and municipalities, as provided for in law."
Article 10. Article 212 of the Federal Constitution is henceforth in force with the following change:
Article 212.
Paragraph 5. Public elementary education will have as an additional source of funding resources provided for in the paragraphs of article 193.
Paragraph 6. The portion of the collection dealt with in article 159, paragraph 1, II, shall not be deemed tax revenue for the purposes provided for in the heading of this article."
Article 11. Article 239 of the Federal Constitution is henceforth in force with the following changes:
"Article 239. The unemployment insurance program and the bonus dealt with in paragraph 3 of this article, after meeting conditions and terms set forth in law, will be funded by resources from the fund of workers assistance provided for in the paragraphs of article 193.
Paragraph 3. Civil servants and employees receiving up to two minimum wages as their monthly remuneration shall be granted the payment of one minimum wage per annum, this amount computing the earnings of individual accounts in the cases of those who already participated of the Program provided for in the previous paragraph in October 5th, 1988."
Article 12. The following article is henceforth added to the General Constitutional Provisions of the Federal Constitution:
"Article 251. Transfers of new responsibilities to the States, the Federal District and municipalities shall be conditioned to the corresponding transfer of funds by the Union and by the States."
"Article 252. Ad lib of the expropriating party, the indemnity due for expropriations of urban real-estate properties may be paid by means of the annulment of tax credits inscribed in the active debt."
Article 13. The following articles are henceforth added to the Act of the Transitory Constitutional Provisions:
"Article 76. Resources referred to in article 155, II, of the Federal Constitution, provided for in article 60, paragraph 2, of this Act of the Transitory Constitutional Provisions, will be replaced by funds deriving from the application of the same tax rate to the collection of the State portion of taxes dealt with in article 154 of the Federal Constitution.
Article 77. During the first five fiscal years in which the tax dealt with in article 154, I, of the Federal Constitution is charged, the following shall be obeyed:
I rates mentioned in article 154, paragraph 2, III, of the Federal Constitution, to meet the State portion of the tax, will be as follows:
- standard, equal to or above fifteen per cent;
- reduced and widened, equal, respectively, to eighty per cent and one hundred and twenty per cent of the standard tax rate;
- special, up to thirty per cent of the standard tax rate;
- selective, equal to or above one hundred and seventy per cent of the standard tax rate;
- to the State or the Federal District where the operation or provision occurs, the portion of the tax deriving from the interstate rate established under items III and IV of this article;
- to the Union, the portion of the tax deriving from the application of the federal rate, added of the difference between the State rate established under item I of this article and the corresponding interstate rate;
- seven per cent when corresponding to standard, widened and selective State tax rates, in operations and provisions carried out in Regions South and South-East and bound for Regions North, Northeast and Center-West and for the State of Espírito Santo, and twelve per cent in all other interstate operations and provisions;
- two-fifths of the State reduced and special tax rates applicable to the same merchandises and services, in operations and provisions carried out in Regions South and South-East and bound for Regions North, Northeast and Center-West and for the State of Espírito Santo, and two thirds in all other interstate operations and provisions;
V during the two first fiscal years in which the tax is charged, it will not be subject to the provisions of article 150, III, b;
VI the amount of resources dealt with in article 154, paragraph 2, VI, of the Federal Constitution, will be equal to the result of the application of the addition provided for in item II, b, of this article, to the assessment basis of the tax, and it will be transferred to the States, proportionally to their respective collections of the tax;
VII the tax due by the taxpayer will be the result of the consolidation of balances assessed in all its establishments located:
- in the same State or in the Federal District;
- all over the national territory, should there remain a creditor balance of the portion of the federal tax;
Article 78. Until complementary law establishes the rate of the tax dealt with in article 156, III, it will be four per cent.
Article 79. Dispensation related to the tax on industrialized products, granted under specific condition and for fixed periods, will be monitored, until termination, as to the federal portion of the tax dealt with in article 154, I, of the Federal Constitution, in the wording given by this Amendment.
Article 80. Dispensations related to the tax dealt with in article 155, II, of the Federal Constitution, granted under specific condition and for fixed periods, until October 31st, 1999, will be monitored, until termination, as to the State portion of the tax dealt with in article 154, I, of the Federal Constitution, in the wording given by this Amendment.
Paragraph 1. From the third to the eighth fiscal year in which the tax dealt with
in article 154, I, be levied, the Union will grant, under the complementary law instituting said tax, financing schemes with differentiated treatment, to its taxpayers benefiting from the dispensation facilities mentioned in the heading of this article, supplementary to the benefit granted by the State or the Federal District, and meting, at least, the following conditions:
I binding to investments in industrial establishments supported by State development program;
II verification, at the Court of Accounts of the Union, of the commitment undertaken in an act entered into with the State or the Federal District, which will be widely publicized;
III limitation of the financing, per taxpayer, to the percentile of its corresponding federal collection of the tax, as assessed according to a criterion based on the interstate shipments of merchandises produced in the State and on tax rates mentioned in article 77, III and IV.
Paragraph 2. The amount of financing mentioned in the previous paragraph shall be limited, annually, to a value deriving from the application of the following percentiles to the total collection of the tax:
I seventy-five hundredths per cent in the third fiscal year in which the tax is required;
II one and five tenths per cent in the fourth fiscal year;
III two and twenty-five tenths per cent in the fifth fiscal year;
IV three per cent starting from the sixth fiscal year.
Article 81. Ten year are henceforth added to the period of time established in article 40 of the Act of the Transitory Constitutional Provisions.
Article 82. As to the Free Zone of Manaus, until October 5th, 2023, the legislation on the tax provided for in article 154, I, of the Federal Constitution, in the wording given by this Amendment, will observe:
I as to the competence of the Union:
- operations pertaining to merchandises consigned to it, coming from it or carried out in its territory will receive the same fiscal treatment, maintaining the comparative advantages, granted by the tax on industrialized products on January 1st, 1999;
- the Union will not add to its own, either totally or partially, the State tax rates;
- the concession of credit to acquirers established out of the Free Zone of Manaus, equal to the amount of the non-required tax pertaining to merchandises produced in the Free Zone;
- operations pertaining to merchandises consigned to it, coming from it or carried out in its territory will receive the same fiscal treatment granted on January 1st, 1999, by the legislation of the tax provided for in article 155, II, of the Federal Constitution;
- the legislation on the tax to be observed in operations carried out in its territory will be within the competence of the State of Amazonas.
Article 83. As to the Free Zone of Manaus, until October 5th, 2023, imports of foreign products will receive the same tax treatment granted, on January 1st, 1999, by the tax dealt with in article 153, I, of the Constitution.
Article 84. During a three-year period, out of the amount corresponding to the federal collection of the tax dealt with in article 154, II, of the Federal Constitution, after the deduction provided for in article 159, paragraph 1, II, shall be assigned to infra-structure works of the national transport system, with priority given to the maintenance, recovery, elimination of critical points, improvement and fitting roads according to demand:
I fifty-three per cent by the Union;
II twenty one and five tenths per cent by the States and the Federal District;
III twenty-two and five tenths per cent by municipalities.
Paragraph 1. The destination of resources to the States, the Federal District and municipalities shall obey the legislation on participation funds provided for in article 159, I, a and b, of the Federal Constitution.
Paragraph 2. Three per cent of the federal portion of the tax, after the deduction provided for in the heading, shall be applied under article 159, I, c, of the Federal Constitution.
Article 85. The complementary law that will institute the taxes provided for in article 154, in the wording given by this Amendment, shall establish the form of use of creditor balances of taxes dealt with in articles 153, IV, and 155, II, of the Constitution, in the wording given in 1988 and 1993.
Article 86. The provisions of article 150, III, c, do not apply to the beginning of collection of taxes mentioned in article 154 and 156, III, of the Federal Constitution, in the wording given by this amendment."
Article 14. Article 34, paragraphs 3, 4 and 5, of the Act of the Transitory Constitutional Provisions applies to situations deriving from this Amendment.
Article 15. This Constitutional Amendment, except for the provisions of the sole paragraph, shall enter into force on the date in which the taxes provided for in articles 154 and 156, III, of the Federal Constitution will become mandatory.
Sole paragraph.On the date of publication of this Constitutional Amendment, the following will enter into force:
I changes pertaining to the following constitutional provisions: article 100, paragraph 4, article 145, paragraphs 3, 4, 5 and 6, article 148, heading, article 149, heading and paragraphs 2 and 3, article 150, III, c, V, and paragraph 7, article 151, IV, except the mention to paragraph 6, article 153, I, II and VII, article 156, paragraph 1, article 160, paragraphs 1 and 2, article 167, IV, and article 171;
II articles 251 and 252 of the Federal Constitution;
III article 81 of the Act of the Transitory Constitutional Provisions;
IV article 14, in what regards paragraphs 3 and 4 of the article mentioned therein.
Article 16. As from the date provided for in the heading of the previous article, the following provisions of the Federal Constitution are revoked: article 153, IV and VI, and paragraphs 3 and 4, article 155, paragraph 3, article 157, II, and article 195, I, b.
Session Hall, on of , 1999.
Representative MUSSA DEMES
___________________________________
Publ. in Diário do Câmara dos Deputados, Mar. 23, 1999.
APPENDIX
Constitution of the Federative Republic of Brazil
of October 5, 1988 (Current text)
Provisions subject to alterations by the Proposal of Amendment to the Constitution No. 175, of 1995, and by the substitute draft of the Special Commission of the Chamber of Deputies (No. 175-A).
TiTLe IV
The Organization of the Powers
CHAPTER III
The Judicial Power
Section I
General Provisions
Article 100. With the exception of alimony credits, payments owed by the federal, State or municipal treasuries, by virtue of a court decision, shall be made exclusively in chronological order of presentation of judicial requests and charged to the respective credits, it being forbidden to designate cases or persons in the budgetary appropriations and in the additional credits opened for such purpose.
Paragraph 3.
Section VIII
Courts and Judges of the States
Article 125. The States shall organize their judicial system, observing the principles established in this Constitution.
Paragraph 4.
TITLE VI
Taxation and Budget
CHAPTER I
The National Tax System
Section I
General Principles
Article 145. The Union, the States, the Federal District and the municipalities may institute the following tributes:
I taxes;
II fees, by virtue of the exercise of police power or for the effective or potential use of specific and divisible public services, rendered to the taxpayers or made available to them;
III benefit charges, resulting from public works.
Paragraph 2.
Article 148. The Union may, by means of a complementary law, institute compulsory loans:
I to meet extraordinary expenses resulting from public calamity, foreign war or the imminence
thereof;
II in the case of public investment of an urgent nature and relevant national interest, observing the provisions of Article 150, III, b.
Sole paragraph. The use of funds deriving from a compulsory loan shall be linked to the expense that justified the institution thereof.
Article 149. The Union shall have the exclusive competence to institute social contributions, contribu-tions of intervention in the economic order and of the interest of professional or economic categories, as an instrument of its activitity in the respective areas, observing the provisions of Articles 146, III, and 150, I and III, and without prejudice to the provisions of article 195, paragraph 6, as regards the contributions mentioned in the latter article.
Sole paragraph. The States, the Federal District and the municipalities may institute a contribution payable by their employees to fund social security and assistance systems for the benefit of the latter.
Section II
Limitations on the Power to Tax
Article 150. Without prejudice to any other guarantees ensured to the taxpayers, the Union, the States, the Federal District and the municipalities are forbidden to:
III collect tributes:
b) in the same fiscal year in which the law which instituted or increased such tributes was published;
IV use a tribute for the purpose of confiscation;
V establish limitations on the circulation of persons or goods, by means of interstate or intermunicipal tributes, except for the collection of toll fees for the use of highways maintained by the Government;
VI institute taxes on;
Paragraph 1. The prohibition set forth in item III, b, shall not apply to the taxes provided upon in articles 153, I, II, IV and V, and 154, II.
Paragraph 6. Any subsidy or exemption, reduction of assessment basis, concession of presumed credit, amnesty or remission, related to taxes, fees or contributions, may only be granted by means of a specific federal, State or municipal law, which provides exclusively for the above-enumerated matters or the corresponding tax, fee or contribution, without prejudice to the provisions of article 155, paragraph 2, item XII, g.
Paragraph 7. The law may impose upon the taxpayer the burden of the payment of a tax or contribution, whose taxable event will occur later, the immediate and preferential restitution of the amount paid being ensured, incase the presumed taxable event does not occur.
Article 151. It is forbidden for the Union:
I to institute a tribute which is not uniform throughout the entire national territory or which implies a distinction or preference regarding a State, the Federal District or a municipality to the detriment of another, it being allowed to grant tax incentives for the purpose of promoting the balanced social and economic development of the various regions of the country;
II to tax income from public debt bonds of the States, of the Federal District and of the municipalities, as well as the remuneration and earnings of the respective public agents, at levels above those established for its own bonds and agents;
III to institute exemptions from tributes within the powers of the States, of the Federal District or of the municipalities.
Article 152. The States, the Federal District and the municipalities are forbidden to establish a tax difference between goods and services of any nature, by reason of their origin or destination.
Section III
The Union Taxes
Article 153. The Union shall have the competence to institute taxes on:
I imports of foreign products;
II exports, to other countries, of national or nationalized products;
III income and earnings of any nature;
IV industrialized products;
V credit, foreign exchange and insurance operations, or operations relating to bonds or securities;
VI rural real-estate property;
VII large fortunes, under the terms of a complementary law.
Paragraph 1. The Executive Power may, observing the conditions and the limits established in law, alter the rates of the taxes enumerated in items I, II, IV and V.
Paragraph 2. The tax established in item III:
I shall be informed according to the criteria of generality, universality and progressiveness, as provided by law;
II (Revoked.)
Paragraph 3. The tax established in item IV:
I shall be selective, based on the essentiality of the product;
II shall be non-cumulative, and the tax due in each operation shall be compensated by the amount charged in previous operations;
III shall not be levied on industrialized products intended for export.
Paragraph 4. The tax established in item VI shall have its rates determined in such a manner as to discourage the retention of unproductive real property and shall not be levied on small tracts of land, as defined in law, when a proprietor who owns no other real property explores them by himself or with his family.
Paragraph 5. Gold, when defined in law as a financial asset or a foreign-exchange instrument, is exclusively subject to the tax dealt with in item V of the heading of this article, due on the operation of origin; the minimum rate shall be one per cent, granted the transfer of the amount collected in the following terms:
I thirty per cent to the State, the Federal District or the territory, according to the origin;
II seventy per cent to the municipality of origin.
Article 154. The Union may institute:
I by means of a complementary law, taxes not instituted in the preceding article, provided that they are non-cumulative and not founded on a tax able event or an assessment basis reserved for the taxes specified in this Constitution;
II in the imminence or in the event of foreign war, extraordinary taxes, encompassed or not by its power to tax, which shall be gradually suppressed when the causes for their institution have ceased.
Section IV
State and Federal District Taxes
Article 155. The States and the Federal District shall have the competence to institute taxes on:
I transfer by death and donation of any property or rights;
II operations relating to the circulation of merchandise and to the provision of interstate and intermunicipal transportation services and of communication services, even when such operations and provisions begin abroad;
III ownership of automotive vehicles.
Paragraph 1. The tax established in item I:
I regarding real property and the respective rights, is within the competence of the State where the property is located, or of the Federal District;
II regarding bonds, titles and credits, is within the competence of the Federal District or of the State where the probate or enrollment is processed, or where the donor is domiciled;
III a transmissionary law shall regulate the competence for the institution of such tax:
a) if the donor is domiciled or residing abroad;
b) if the deceased owned property, was resident or domiciled or had his probate processed abroad;
IV the Federal Senate shall establish the maximum rates for such tax.
Paragraph 2. The tax established in item II shall observe the following:
I it shall be non-cumulative, and the tax due in each operation concerning the circulation of merchandise or the provision of services shall be compensated by the amount charged in the previous operations by the same or by another State or by the Federal District;
II exemption or non-levy, except as otherwise determined in the legislation:
a) shall not imply credit for compensation with the amount due in the subsequent operations or provisions of services;
b) shall bring about the annulment of the credit pertaining to the previous operations;
III it may be selective, based on the essentiality of merchandises or services;
IV a resolution of the Federal Senate, on the initiative of the President of the Republic or of one-third of the Senators, approved by the absolute majority of its members, shall establish the rates that apply to interstate and export operations and provision of services;
V the Federal Senate has the power to:
- establish minimum rates for domestic operations, by means of a resolution on the initiative of one-third and approved by the absolute majority of its members;
- establish maximum rates for the same operations to settle a specific conflict involving the interest of the States, by means of a resolution on the initiative of the absolute majority and approved by two-thirds of its members;
VII in cases of operations and provisions which earmark goods and services to end-consumers located in another State, the following shall be adopted:
- the interstate rate, when the recipient is a taxpayer of this tax;
- the internal rate, when the recipient is not a taxpayer of this tax;
IX it shall also be levied:
- on the entry of goods imported from abroad, even in the case of goods intended for consump-
- on the total value of the operation, when the merchandise is supplied with services not included in the tax competence of the municipalities;
tion or for the fixed assets of the establishment, as well as on services rendered abroad,
and the tax shall be attributed to the State where the establishment receiving the goods or services is located;
- on operations transferring industrialized products abroad, excluding semi-finished products as defined in a complementary law;
- on operations transferring petroleum, including lubricants, liquid and gaseous fuels derived there from, and electric energy to other States;
- on gold, in the cases defined in article 153, paragraph 5;
XII it is incumbent to complementary law:
- to define its taxpayers;
- to provide for tax substitution;
- to regulate the system of tax compensation;
- to establish, for purposes of collection of the tax and definition of the responsible establishment, the location of the operations concerning the circulation of goods and the provision of services;
- to exclude from levy of the tax, in exports abroad, services and other products other than those mentioned in item X, a;
- to provide for the event of maintenance of a credit for services and goods remitted to another State and exported to other countries;
- to regulate the manner in which, through deliberation by the States and the Federal District, tax exemptions, incentives and benefits shall be granted and revoked.
Section V
Municipal Taxes
Article 156. The municipalities shall have the competence to institute taxes on:
I urban buildings and urban land property;
II inter vivos transfer, on any account, by onerous acts, of real property, by nature or physical accession, and of real rights to property, except for real security, as well as the assignment of rights to the purchase thereof;
III services of any nature not included in article 155, II, as defined in a complementary law.
Paragraph 1. The tax set forth in item I may be progressive, under the terms of a municipal law, in order to ensure achievement of the social function of the property.
Paragraph 2. The tax set forth in item II:
I shall not be levied on the transfer of goods or rights incorporated into the assets of a corporate body to pay up its capital, nor on the transfer of goods or rights resulting from the merger, incorporation, division or dissolution of corporate bodies, unless, in such cases, the predominant activity of the purchaser is the purchase and sale of such goods or rights, the lease of real property or leasing;
II is within the competence of the municipality where the property is located.
Paragraph 3. As regards the tax established in item III, a complementary law shall:
I establish its maximum rates;
II exclude exportations of services to other countries from levy of the said tax.
Section VI
Tax Revenue Sharing
Article 157. The following shall be assigned to the States and to the Federal District:
I the proceeds from the collection of the federal tax on income and earnings of any nature, levied at source on income paid on any account by them, by their autonomous government entities and by the foundations they institute and maintain;
II twenty per cent of the proceeds from the collection of the tax that the Union may institute in the exercise of the powers conferred on it by article154, I.
Article 158. The following shall be assigned to the municipalities:
I the proceeds from the collection of the federal tax on income and earnings of any nature, levied at source on income paid on any account by them, by their autonomous government entities and by the foundations they institute and maintain;
II fifty per cent of the proceeds from the collection of the federal tax on rural property, concerning real property located in the municipalities;
III fifty per cent of the proceeds from the collection of the State tax on the ownership of automotive vehicles licensed in the municipalities;
IV twenty-five per cent of the proceeds from the collection of the State tax on operations regarding the circulation of goods and on provision of interstate and inter municipal transportation services and services of communication.
Sole paragraph. The revenue portions assigned to the municipalities, as mentioned in item IV, shall be credited in accordance with the following criteria:
I at least three-fourths, in proportion to the value added in the operations regarding the circulation of goods and the provision of services carried out in the territory of the municipalities;
II up to one-quarter, in accordance with the provisions of a State law or, in the case of the territories, of a federal law.
Article 159. The Union shall remit:
I of the proceeds from the collection of taxes on income and earnings of any nature and on industrialized products, forty-seven per cent as follows:
- twenty-one and a half of one per cent to the Revenue Sharing Fund of the States and of the Federal District;
- twenty-two and a half of one per cent to the Revenue Sharing Fund of the Municipalities;
- three per cent, for application in programs to finance the productive sector of the North, Northeast and Centre-West Regions, through their regional financial institutions, in accordance with regional development plans, the semi-arid area of the Northeast being ensured of half of the funds intended for that Region, as provided by law;
Paragraph 1. For purposes of calculating the amount to be remitted in accordance with the provisions in item I, the portion of the collected tax on income and earnings of any nature assigned to the States, to the Federal District and to the municipalities shall be excluded, as provided by articles 157, I, and 158, I.
Paragraph 2. No federated unit may be allocated a portion in excess of twenty per cent of the amount referred to in item II, and any excess shall be distributed among the other participants, maintaining, for the latter, the apportionment criterion established therein.
Paragraph 3. The States shall remit twenty-five per cent of the funds they may receive as provided by item II to the respective municipalities, observing the criteria established in article 158, sole paragraph, I and II.
Article 160. It is forbidden to withhold or to make any restriction to the remittance and use of the funds assigned in this section to the States, to the Federal District and to the municipalities, including any tax additions and increases.
Sole paragraph. The prohibition mentioned in the present article does not prevent the Union and the States from remitting the funds on condition of payment of their credits, including those of the autonomous government agencies.
Article 161. A complementary law shall:
I define the added value for the purposes provided by article 158, sole paragraph, I;
II establish rules for the remittance of the funds referred to in article159, especially the criteria for the sharing of the funds set forth in its item I, seeking to promote social and economic balance among States and among municipalities;
III provide for the monitoring, by the beneficiaries, of the calculation of the quotas and release of the participations set forth in articles 157, 158 and 159.
Sole paragraph. The Federal Court of Accounts shall calculate the quotas referring to the participation funds mentioned in item II.
Article 162. The Union, the States, the Federal District and the municipalities shall announce, on or before the last day of the month following that of collection, the amounts of each of the tributes collected, the funds received, the tax sums remitted and to be remitted and the numerical expression of the apportionment criteria.
Sole paragraph. The data announced by the Union shall be discriminated by State and by municipality; those of the States, by municipality.
CHAPTER II
Public Finances
Section II
Budgets
Article 165. Laws of the initiative of the Executive Power shall establish:
I the pluriannual plan;
II the budgetary directives;
III the annual budgets.
ABREVIATIONS
BASA Banco da Amazônia S.A.
BEFIEX Special export programs
BNB Banco do Nordeste do Brasil S.A.
CDI Council for Industrial Development
CFEM Financial compensation for the ex-ploitation of mineral resources - Federal Royalty
CPMF Temporary contribution on the movement or transfer of values and of credits and rights of a financial nature
COFINS Contribution for financing social security
CONFAZ National Council for Financial Policy
CSLL Social contribution on net profit
DNPM National Department of Mineral Production
FGTS Guarantee fund for tenure
FINAM Investment Fund of the Amazon Region
FINOR Investment Fund of the Northeast
FUNRES Fund for the Economic Recovery of the State of Espírito Santo
GERES Executive Group for the Economic Recovery of the State of Espírito Santo
IBAMA Brazilian Institute of Environment and Renewable Natural Resources
ICMS Tax on operations related to the circulation of goods and on provision of services of interstate and intermunicipal transport and of com-munication
IE Export tax
II Import tax
IOF Tax on credit, foreign-exchange and insurance operations
IPI Tax on industrialized products
IPTU Tax on urban real-estate and territorial property
IPVA Tax on the ownership of motor vehicles
IR Income tax
IRPJ Corporate income tax
IRRF Income tax retained at the source
ISS Tax on services
ITBI Tax on transmission of real-estate property
ITR Tax on rural territorial property
IUM Single tax on minerals
MDIC Ministry of Development, Industry and Foreign Trade
MF Ministry of Finance
MME Ministry of Mines and Energy
MP Provisional measure
PDTI Technological industrial development programs
PEC Proposal of amendment to the Constitution
PIS Social Integration Program
PSI Integrated sectoral programs
RIR Income-Tax Regulation
SECEX Secretariat for Foreign Trade/MDIC
SDI Secretariat for Industrial evelopment/MDIC
SIMPLES Integrated Program for the Payment of Taxes and Contributions
SUDAM Superintendency for the Development of the Amazon Region
SUDENE Superintendency for the Development of the Northeast
TEC Common external tariff
TIPI Table of incidence of tax on industrialized products
TJLP Long-term interest rate
TR Referential interest rate
UFIR Fiscal reference unit