BRAZIL – CERTAIN MEASURES CONCERNING TAXATION AND CHARGES
REQUEST FOR CONSULTATIONS BY JAPAN
The following communication, dated 2 July 2015, from the delegation of Japan to the delegation of Brazil and to the Chairperson of the Dispute Settlement Body, is circulated in accordance with Article 4.4 of the DSU.
My authorities have instructed me to request consultations with the Government of the Federative Republic of Brazil (“Brazil”), pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the DSU), Article XXII:1 of the General Agreement on Tariffs and Trade 1994(the GATT 1994), Article 8 of the Agreement on Trade-Related Investment Measures (the TRIMs Agreement) and Articles 4 and 30 of the Agreement on Subsidies and Countervailing Measures (the SCM Agreement) with respect to certain measures concerning taxation and charges which appear to be inconsistent with Brazil’s obligations under several provisions of the covered agreements.
Such measures affect several economic sectors and, in some cases, they apply horizontally to all goods or to broad categories of goods. These measures, taken as a whole and individually, increase the effective level of protection of the domestic industry in Brazil by providing preferences and support to producers, investors and exporters in Brazil, by inter alia (1) imposing a higher tax burden on imported goods than on domestically produced goods, (2) conditioning tax advantages to certain expenditures in Brazil, including on domestically produced goods, and (3) providing export contingent subsidies.
Whereas some of the specific measures at issue have existed for some years, the overall framework of tax advantages to producers, investors and exporters in Brazil, in relation to taxation, has been markedly strengthened in recent years with the adoption of new specific tax schemes and the revision or completion of existing ones, thus following a consistent pattern.
This request for consultations focuses on the following matters:
MEASURES IN THE AUTOMOTIVE SECTOR
Brazil’s Programa de Incentivo à Inovação Tecnológica e Adensamento da Cadeia Produtiva de Veículos Automotores (“Incentive Programme for Technological Innovation and Consolidation of the Automotive Vehicle Supply Chain”) or “INOVAR-Auto” is a programme that lowers taxes on domestic automobile s.[…]
In light of these facts, Japan is concerned that INOVAR-Auto and Brazil’s IPI tax regime, as well as each of their constituent measures individually and/or in combination, both as such and as applied, are inconsistent with Brazil’s obligations under the following provisions of the covered agreements:
Article I:1 of the GATT 1994;
Article III:2 of the GATT 1994;
Article III:4 of the GATT 1994;
Article III:5 of the GATT 1994;
Article 2.1 of the TRIMs Agreement, separately and in conjunction with Article 2.2 and the Illustrative List in the Annex to the TRIMs Agreement; and
Articles 3.1(b) and 3.2 of the SCM Agreement. .[…]
MEASURES RELATING TO INFORMATION AND COMMUNICATION TECHNOLOGY, AUTOMATION AND RELATED GOOD
In an effort to develop its information and communication technology (ICT), automation and related sectors, the Brazilian government has established several programmes that provide economic incentives, including but not necessarily limited to exemption from and/or reduction in taxes, duties, contributions and charges, to domestic entities engaged in the production, import, and export of goods and services in these sectors. Since 1991, Brazil has implemented a comprehensive system of certain tax advantages embodied in and applied through the following programmes : (1) the Informatics Programme, created under the Lei de Informatica 1 (“Informatics Law”), decreed in 1991 and later amended in 2001; (2) Programa de Inclusão Digital 2 (“Digital Inclusion Programme”), 2005; (3) Programa de Incentivos ao Setor de Semicondutores, PADIS 3 (Programme of Incentives for the Semiconductors Sector”), 2007; and (4)Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Equipamentos para TV Digital, PATVD 4(“Programme of Support to the Technological Developments of the Industry of Digital TV Equipment”), 2007.
MEASURES PROVIDING TAX ADVANTAGES TO EXPORTERS
RECAP is Brazil’s “Special Regime for the Purchase of Capital Goods for Exporting Enterprises” (Regime Especial de Aquisição de Bens de Capital para Empresas Exportadoras), established under Lei n° 11,196 of 25 November 2005 and Decreto n° 5,649 of 29 December 2005, and implemented through a number of related regulations. Under this programme, Brazil suspends the application of several taxes and charges including PIS/PASEP, COFINS, PIS/PASEP-Importação and COFINS-Importação for “predominantly exporting companies”, 10 generally including companies that obtained at least 50 percent of their gross turnover from exports in the preceding calendar year as well as companies that did not meet such a 50 percent export threshold but commit to do so over the next three years, as regards the domestic purchase or importation by such companies of machinery, tools, instruments and other equipment. The suspension ultimately becomes a zero rate when certain conditions are met.
Japan reserves the right to raise additional measures and claims regarding these matters in the course of the consultations.
Japan looks forward to receiving Brazil’s reply to this request for consultations in due course. Japan is ready to consider with Brazil mutually convenient dates for consultations