International agreements help Brazil repatriate funds

Brazil's Federal Revenue Service expects to recover $2.53 billion in taxes, interest, and fines resulting from unreported funds identified as part of the corruption investigation involving Petrobras, Operation Car Wash. The mission has benefited from international information exchange agreements signed after the September 11, 2001 attacks on the United States, and these agreements have become a crucial tool in fighting corruption and money laundering.

Signed under US pressure to help detect transactions carried out by terrorist groups, tax cooperation agreements are gradually helping increase global financial transparency and prevent tax evasion through tax havens. “These agreements provide three key benefits—fighting  terrorism, curbing money laundering, and reducing tax evasion,” says tax attorney José Henrique Longo.

Through the international agreements, countries are able to share information on tax, transactions, and taxpayer assets with each other without a court order from the other country. Potential targets are taxpayers holding offshore accounts with a balance of at least $50,000. But disclosure applies only to cases that raise concerns, and the home government has to file a formal inquiry with the foreign country's authority.

The agreements advanced since the late 2000's, with the US Foreign Account Tax Compliance Act (FATCA) making the information exchange automatic. The 2008 economic crisis created further momentum for such deals, which have grown to become multilateral.

Brazil currently has request-based tax information sharing agreements in place with nine countries: Bermuda, Cayman Islands, Guernsey, Jamaica, Jersey, Switzerland, the United Kingdom, the United States, and Uruguay. Out of these, however, only the US deal has been implemented since 2013. The other agreements are still pending ratification by Brazilian Congress.

The Organization for Economic Cooperation and Development (OECD) and the G20 (the group of the 20 world's largest economies) have also signed protocols for automatic information sharing. Part of the member countries will begin implementing these deals in 2017, and another group (which includes Brazil) will implement them in 2018. But here again, Brazil's implementation of the commitment signed by 50 countries at the G20 meeting in 2014 will depend on Congress ratification.

Through these agreements, the Brazilian government, through its Federal Revenue Service, receives information on assets, financial transactions, and payment of Brazilian taxes with funds held in other countries. Then, the tax authority matches the data to the Income Tax filings and levies any outstanding payable taxes in case it finds any liabilities.

The tax authorities may also contact the Central Bank and the Public Prosecutor's Office depending on the issue it identifies. “No such investigations as Operation Car Wash would probably have got so far without the US deals,” says tax lawyer José Henrique Longo. “We are seeing a paradigm shift from complete opacity to financial transparency,” he completed.

More recently, the Supreme Court validated a law that allows the Federal Revenue Service to access taxpayers' banking information without a prior court order when investigating tax fraud. The tax authority maintains it needs this information to curb tax evasion.

Translated by Mayra Borges