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27 October 2010

Brazil Discounts Further Forex Tax Measures

Brazil's finance minister has ruled out ending the income tax exemption on investment returns on overseas holdings of local bonds.

Speculation has grown that the removal of the exemption was one of the measures being studied by the government in the medium-term for curbing the strength of the real.

Finance Minister Guido Mantega said he was satisfied that his recent measures to curb the real would work. The transaction tax on foreign investment in local bonds (IOF) has been raised from 2% to 6% in the last month, and it has been tightened up to make it more effective.

Before the exemption was instituted in 2006, foreign investors paid income tax at 15% on their investment returns.

In order to come into force in 2011, the proposal to remove the tax exemption would have required congressional approval before the end of the year.

Peter De Proft, Director General of the EFAMA, said: “UCITS IV offers great opportunities to the funds industry and is another important step towards a single European market. EFAMA welcomes the six efficiency measures, but in the interests of the funds industry, and particularly its investors, it urges individual member states to resolve these important tax issues. Otherwise, there is a risk that the objectives of UCITS IV will not be achieved and that the funds industry will not be able to make full use of all the efficiency measures.”

Georges Bock, Global Chairman of KPMG’s Funds Tax Network, added: “If the EU member states want to achieve their single market ambitions, they need to press at least for a merger directive for investment funds based on the principle of a tax deferral so that investors would only pay tax on mergers of funds once money truly hits their pockets. A deferral would not lead to an ultimate loss of tax revenues for the various EU member states. It is therefore hopefully possible to reach the required unanimity for the adoption of such a measure.”

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