In private letter ruling (PLR) No. 62/2017 (20 January 2017), the Brazilian Tax Authority (RFB) ruled that representative offices established in Brazil by nonresident reinsurers (so-called admitted reinsurers under the Brazilian regulatory framework) should be treated for tax purposes the same as a reinsurer incorporated in Brazil. In making its decision, the RFB considered the minimum Brazilian regulatory requirements for an admitted reinsurer to operate in Brazil and the responsibilities and duties charged by law to such representative offices.
Generally, reinsurers incorporated in Brazil pay a 45% corporate income tax and a 4.65% PIS/COFINS on gross premiums, while representative offices of nonresident insurers pay a 34% corporate income tax and are generally exempt from PIS/COFINS on service fees received from nonresident reinsurers.
In the RFB’s view, the activities of a Brazilian representative office of a nonresident reinsurer are not mere brokerage, preparatory or ancillary types of activities. Rather, the activities are reinsurance activities because under Brazilian reinsurance law: (i) such reinsurers are allowed to operate within Brazil provided that they are incorporated under foreign law to issue reinsurance premiums; and (ii) the reinsurers’ local representative (who is permanently based at the Brazilian representative office) has ample powers to bind the nonresident reinsurer with local insurers/reinsurers.
In Brazil, a PLR is binding for RFB agents as of the date of its issuance and is generally not subject to appeal.
On a short-term basis, nonresident reinsurers conducting business in Brazil should revisit their current activities, agreements, practices and guidelines to assess the scope of the powers of attorney of their representatives in Brazil vis-à-vis this PLR. They also should consider narrowing down or limiting the scope of such powers in light of Brazilian reinsurance regulatory/law parameters such that the nonresident reinsurers are able to contest the ample powers criterion, which is at the core of the RFB’s view. Narrowing or limiting the scope of powers may provide nonresident reinsurers with stronger arguments during litigation. In an appeal before the Brazilian tax court or a lawsuit, a nonresident reinsurer will present and argue its case based on the specific facts and circumstances, including the nonresident reinsurer’s legal footprint, operations scale and scope, assets and headcount in Brazil.
On a medium or long-term basis, nonresident reinsurers may want to assess the effect and feasibility of readjusting the current way of conducting business in Brazil in light of Brazilian reinsurance regulatory/law parameters.
EYG no. 01070-171Gbl