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ARTICLE · 07 JANUARY 2015

Brazilian Tax Development Impacting Charters Agreements

Mayer Brown
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Brazil’s oil & gas industry and the Brazilian Revenue Service are embroiled in a significant tax dispute regarding the contractual model adopted by the industry.

BrazilEnergy and Natural Resources
Ivan Tauil
Ivan Tauil
Eduardo Maccari Telles
Eduardo Maccari Telles
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Keywords: Brazil, taxation, charter agreements,

Brazil's oil & gas industry and the Brazilian Revenue Service are embroiled in a significant tax dispute regarding the contractual model adopted by the industry and the taxation over outbound payments related to charter agreements.

The first component of this dispute refers to the zero percent tax rate of the withholding income tax (IRRF) on outbound payments related to the chartering of vessels. This benefit was introduced in the Brazilian tax system by Law no. 4,862/1965, enacted 50 years ago, and later renewed in 1997 by Law no. 9,481.

It is important to bear in mind that this rule was not created specifically to benefit vessels used in oil & gas operations. Rather, it was meant to encourage the general charter of foreign vessels for transportation, considering the lack of sufficient Brazilian vessels at the time.

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