A letter of credit can eliminate double taxation
March 25, 2010
Fabia Azevedo and Cristiane Magalhães of Machado Associados in Brazil explain how importers can make use of letters of credit to avoid double taxation where country agreements do not help.
Whenever a Brazilian legal entity imports goods from a foreign legal entity, qualified as a related party, domiciled in a tax haven or under a preferred tax regime, for a price that exceeds the benchmark reached by one of the transfer pricing methods established by the Brazilian tax law, the tax deduction of this difference must be disallowed and such difference must be added to the Brazilian legal entity’s net profit or loss, when calculating its corporate taxes (Corporate Income Tax - IRPJ and Social Contribution on Net Profits - CSLL).
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