Increasing the attractiveness of current projects, divestments and new bid rounds on exploration and production (“E&P”) of oil and natural gas, it is finally extended the deadline of Repetro, special regime that suspends federal taxes on importation and exportation of goods destined to these activities.
Presently limited to December 31, 2020, the Repetro shall be in force until December of year 2040, as per Decree # 9,128, dated August 17, 2017, published in today in the Official Gazette, but with efficacy set forth as from January 1, 2018.
Beyond the time extension, new rules brought by such Decree together with the enactment of Provisional Measure (“PM”) # 795, dated August 17, 2017, also published today, enhance the scope of goods eligible to Repetro.
No longer restricted to customs clerarances under temporary admission, it will be possible to achieve the suspension of taxes resulting from the regime to goods that, being listed by the Federal Revenue Service (“FRS”), acquired until July 31, 2022, and destined to E&P activites, shall stay definitively in Brazil – as well as to raw materials, intermediary products and packaging materials acquired domestically or imported that are used in the productive process of the above mentioned goods.
PM # 795/2017 contains more news to the taxation of the E&P industry in Brazil.
As from January 1, 2018, it shall be admitted the deduction in full, on the ascertainment of Corporate Income Taxes (“CIT”), of amounts applied on E&P activities. There was a similar provision specific to Petrobras in article 12 of Decree-law # 62 of 1966, now revoked.
However, assets formed through the destination of expenditures on the development phase will be subject to depletion, which quota shall be deductible for CIT purposes. For such assets formed until December 31, 2022, it is admitted the accelerated deduction of depletion quotas, calculated under the unit of production method and multiplied by the factor of 2.5.
And machinery, equipment and “facilitating instruments” applied on the development phase will be subject to linear depreciation, based on the usual rates established by the FRS – admitted the determination of different rates if effectively adequate to the taxpayer’s activities, duly proved.
Other feature of PM # 795/2017 concerns the taxation on payments to non residentes for the charter or rental of vessels related to E&P.
Changes apply to the additions that had been made back in 2014 to the rule reducing to zero the Withholding Income Tax (“WIT”) rate on such payments. By requiring observance to maximum percentages set forth per type of vessel, such additions limited this relief for charters/rentals carried out simultaneously to the rendering of services executed with related legal entities – hence imposing WIT on the “excess payment”.
While some changes seem to facilitate the understanding of the mechanism, others bring further doubts about the taxation of these payments, including on which vessels the new reduced percentages (i.e., broadening the potential levy of WIT) to become in force as from 2018 shall apply.
Besides, through a peculiar provision of retroactive efficacy, it was created some kind of amnesty to the settlement of WIT suposedly owed as regards payment of charters/rentals until December 31, 2014. To the taxpayer that renounces the existing litigation on the matter, it will be possible to ascertain WIT only on the “excess payment” and pay the debt in up to twelve consecutive monthly installments with total elimination of fines, although increased by interest.
One must now wait for the PM’s development in Congress, the applicable regulations by the FRS and the procedures of the Executive Branch required to adequate the new tax reliefs in connection with the Fiscal Responsibility Law.