New rules to combat corruption come into effect.

Felipe Pontes, reporter for Agência Brasil - In the final days of 2016, the Brazilian Federal Revenue Service issued three regulations that standardize the sharing of information with other countries and facilitate the identification of the ultimate beneficial owners of companies. The objective is to combat tax evasion and money laundering, crimes generally linked to corruption.

Normative Instruction 1684, published on December 30th, regulates the new figure of "ultimate beneficiary," which was created in May by the tax authorities to facilitate the legal accountability of individuals for crimes committed using the National Registry of Legal Entities (CNPJ) of corporations and companies.

Starting on the first day of this year, new CNPJs (Brazilian company tax IDs) must identify the true beneficiary of the company's business, even if that beneficiary is located outside the country. For existing legal entities, the deadline to provide this information is December 31, 2018.

According to the tax authorities, the new rule was created based on studies from the National Strategy to Combat Corruption and Money Laundering (ENCCLA), which found that police and judicial authorities have difficulty identifying the effective controllers of companies.

According to Alexandre Naoki, a professor of tax law at the University of São Paulo in Ribeirão Preto, the measure aligns Brazil with practices being implemented in the rest of the world, not only in terms of combating corruption, but also to discourage the use of tax havens as a means of concealing the true owners of illegally obtained resources.

"Many individuals end up hiding by using several successive legal entities. You create a company, which creates another company, and so on, which ends up making the tax authorities' job of identifying the ultimate beneficiary very difficult," Naoki told Agência Brasil.

"Identification of the funds is already a routine practice, but it might have taken much longer. Now it will be faster," the lawyer emphasized.

International collaboration

Meanwhile, normative instructions 1680 and 1681, both published on the 29th, facilitate the sharing of tax information with other countries.

The first regulation establishes a Common Reporting Standard (CRS) in Brazil for the exchange of information, as defined in international agreements. To this end, instruments and parameters were established for the automatic collection and provision of data by financial institutions.

Brazil will also begin submitting an annual Country-by-Country Report (CbC) with information on companies belonging to multinational groups whose ultimate controlling shareholder is resident in Brazil.

The declaration will include data such as the jurisdictions in which the group operates, the location of its activities, the global allocation of income, taxes paid and due, among others. In addition, all companies within the group and the economic activities they perform will have to be identified.

"Individuals and legal entities from other countries who manage their accounts here in Brazil will be flagged by banks," explained the acting Undersecretary of Tax Inspection of the Federal Revenue Service, Francisco Assis de Oliveira Júnior. "[The account holders] will be identified as residents of other countries, and this information will be available to their countries of origin," he emphasized.

According to the tax authorities, this measure will also give Brazil broader access to information about Brazilians who move funds in accounts abroad, due to reciprocity agreements.