Highlights on Tax Changes for 2008 – Consequences of the Non-Extension of CPMF

Important tax changes were implemented in Brazil at the beginning of 2008 byvirtue of the CPMF tax not having been extended by Congress.

It should be noted that CPMF provided not only public revenues to the Federal Union but also information concerning flows of funds of taxpayers through bank accounts, a tool for triggering tax audits. CPMF was a tax imposed on all bank account movements and was levied at a 0.38% rate on each amount debited.

In this context, the Federal Government adopted the following three measures for 2008: (i) increase of 0.38% of the Financial Transaction Tax (locally known as“IOF”), which affected certain credit, foreign exchange and insurance transactions; (ii) increase the rate of the Social Contribution on Profits of Financial Institutions (“CSLL”) from 9% to 15%; and (iii) introduction of a specific report to be filed by financial institutions with information related to bank transfers of funds of taxpayers.

Measures “i” and “ii” above intend to maintain the same level of public revenues collected through CPMF in the past and the report referred to in “iii” allows the tax authorities to continue to have access to the financial movements of taxpayers through bank accounts.

The political party which prevailed in Congress at termination of CPMF and the National Confederation of Liberal Professions filed actions with the Brazilian Supreme Court to have the above-mentioned changes recognized as being unconstitutional. The Supreme Court is not required to rule upon such actions within a certain term, but has adopted a summary proceeding to speed up their final conclusion.

Before the Supreme Court renders its judgment in the above-mentioned actions, taxpayers should be aware of the specifics involving the recent changes in tax law, in order to optimize their tax burden or at least correctly project tax costs for 2008.

Further information on the above may be obtained directly from Antonio Amendola at antonioamendola@felsberg.com.br.