Tax Incentives for Aquatic Transportation
Under Brazilian Law, a provisional measure has the force of a genuine law, but the National Congress must convert it into law within a sixty-day term, which may be extended once for another sixty days, otherwise it becomes ineffective.
This note focuses on two important tax incentives for the aquatic transportation, which shall foster ship building and coastal shipping in Brazil. I – Reduction of Taxes on Bunker Oil for Coastal Shipping Section 2 of MP No. 428/2008 contemplates that social contributions on gross income (locally known as “PIS/COFINS”) are not imposed on income recognized by companies selling bunker oil (marine fuel, marine gas oil and marine diesel oil, respectively, classified under the Harmonized Code in positions 2710.19.22; 2710.19.29, and 2710.19.29) to clients conducting activities connected with coastal shipping or port and maritime support.
Moreover, such Section provides that social contributions on imports (“PIS/COFINS on Imports”) are not levied on imports of bunker oil to the extent that importers use such oil in activities relating to coastal shipping or port and maritime support. If the bunker oil is not consumed in coastal shipping or port and maritime support, clients then become liable for the PIS/COFINS not paid by suppliers.
Accordingly, if the bunker oil is not destined to the relevant shipping activities, importers become responsible for the PIS/COFINS on Imports. In both cases, clients or importers also become liable for a fine and interest calculated as from the date the oil was purchased or the date of the import statement.
PIS/COFINS are social contributions levied on gross income at a combined rate of 9.25%. PIS/COFINS on Imports are social contributions triggered on imports at a rate of 9.25%. II – Reduction of Taxes on Ship Building Parts Section 3 of MP No. 428/2008 amended Law nº 10865/2004 to introduce tax incentives for parts of vessels registered or pre-registered with the Special Brazilian Registry (“Registro Especial Brasileiro – REB”). Such Section reduced to zero the rate of PIS/COFINS rate on Imports collected on imports of parts destined to the building, maintenance, modernization and conversion of ships not only registered but also pre-registered with the REB.
This incentive already existed in the past but was only applicable to imports of parts destined to the maintenance, modernization and conversion of vessels registered in REB. Further, Section 3 reduced to zero the rate of PIS/COFINS levied on gross income deriving from sales by Brazilian companies of parts to be used in the building, maintenance, modernization and conversion of vessels registered or pre-registered with the REB. The Federal Government will regulate the above-mentioned tax incentives. It may expressly list the parts that may be covered by such tax incentives.