Normative Instruction (IN) No. 1,681, issued on December 28, 2016 by the Brazilian Federal Revenue Service, established the rules for Country-by-Country (CbC) reporting in Brazil. This instruction implemented Action 13 of the OECD’s Base Erosion and Profit Shifting (BEPS) Project, which aims to enhance transparency in international taxation.

Key Aspects of IN 1,681/2016

Reporting Obligation

The annual filing of the CbC report is mandatory for:

1. Brazilian tax resident entities that qualify as the ultimate parent entity (UPE) of a multinational enterprise (MNE) group.
2. Brazilian tax resident entities that are not the UPE but meet certain conditions, such as when the UPE is not required to file in its jurisdiction or when there’s no agreement for automatic exchange of CbC reports between Brazil and the UPE’s jurisdiction.

Revenue Threshold

CbC reporting is required for MNE groups with total consolidated group revenue in the previous fiscal year exceeding:

• BRL 2.26 billion (approximately $720 million) if the UPE is a Brazilian tax resident
• €750 million (approximately $816 million) or equivalent in local currency if the UPE is a tax resident of another country

Filing Deadline

The CbC report must be submitted annually with information from the immediately preceding fiscal year. It is filed as part of the Digital Tax-Accounting Bookkeeping (Escrituração Contábil Fiscal – ECF) and transmitted to the Public Digital Accounting System (SPED). The deadline is typically the last business day of July.

Required Information

The CbC report must include:

1. Information on the global allocation of income, taxes paid and accrued, and indicators of economic activity location for each tax jurisdiction where the MNE group operates.
2. A list of all constituent entities of the MNE group included in each aggregation per tax jurisdiction, including the nature of their main business activities.
3. Additional voluntary information for clarification purposes.

Penalties for Non-Compliance

IN 1,681/2016 established penalties for failure to comply with the reporting obligations:

• Late submission: BRL 500 to BRL 1,500 per calendar month or fraction thereof.
• Failure to comply with tax authority notices: BRL 500 per calendar month.
• Inaccurate, incomplete, or omitted information: 3% of the amount of information omitted, inaccurate or incomplete (minimum of BRL 100).

Implementation and Subsequent Regulations

The first CbC report under this instruction concerned information relating to the 2016 fiscal year, to be filed in 2017. Subsequent regulations, such as ADE COCAD No. 9/2017, extended similar reporting requirements to Brazilian entities regarding beneficial ownership disclosure.IN 1,681/2016 aligns Brazil with international standards for tax transparency and information exchange, supporting global efforts to combat tax avoidance strategies used by multinational enterprises.