Newsletter Insurance and Tax – January

Supplementary Law Bill No. 266/2019 – Inclusion of the reinsurance premium assignment abroad to the Service List attached to Supplementary Law No. 116/2003

On December 4, 2019, House Representative Carlos Bezerra (MDB/MT) presented the Supplementary Law Bill No. 266/2019 (“Bill 266/2019), to modify the List of Services attached to Supplementary Law No. 116/2003, which establishes the Tax on Services of Any Nature (“ISS”), to include the assignment of the reinsurance premium abroad among taxed activities.

It should be noted that, since the opening of the Brazilian reinsurance market, there has been discussion about the incidence of ISS on the assignment of the reinsurance premium abroad.

However, there are two arguments to support that the reinsurance premium assignment abroad is not taxed by ISS:

1. Absence of actual provision of services, as the assignment of reinsurance abroad is merely a transfer of an obligation; and
2. Reinsurance premium is subject to the Tax on Financial Transactions (“IOF”), at a Federal Level.

Thus, in order to include the assignment of reinsurance premium abroad among the activities taxed by ISS, Bill 266/2019 was presented, to amend item 18.01 of the List of Services attached to Supplementary Law No. 116/2003, to include the assignment of reinsurance premium abroad, as shown in the comparison below:

 

CURRENT WORDING	PROPOSED WORDING (HIGHLIGHTED THE INCLUDED EXCERPT)
18.01 – Claims regulation services linked to insurance contracts; inspection and risk assessment to cover insurance contracts; prevention and management of insurable and similar risks.	18.01 – Claims regulation services linked to insurance contracts; inspection and risk assessment to cover insurance contracts; prevention and management of insurable and similar risks; assignment of reinsurance premium abroad.

This bill is currently in the Finance and Taxation Committee of the Chamber of Deputies. In order to effectively become law, it depends on approval by an absolute majority in the Chamber of Deputies and in the Federal Senate, as well as the sanction of the President of the Republic.

However, it should be noted that the assignment of reinsurance premium is subject to the IOF, although the rate is currently zero.

At a Federal level, the assignment of reinsurance premium abroad is subject to PIS-Importation and to COFINS-Importation, however, under a decreased tax basis (15% of the premium), and there are certain court decisions concluding that there is a financial provision of services that justify such charge (Appeal No. 012467-97.2015.4.03.6100, TRF3, Federal Judge Carlos Muta, Official Gazette 12.12.2016).

Thus, even though the charge of ISS over such activity is questionable, the incidence of social contributions under the argument that it is a provision of services of “assumption of risks” might be used as a reason to charge ISS, if Bill 266/2019 is enacted.

Finally, even if such Bill is to be converted into law, effectively amending item 18.01 of the List of Services attached to Supplementary Law No. 116/2003, there are arguments to challenge an eventual charge of ISS, due to the fact that there is no provision of services and that there is a double taxation with IOF.

We are at your disposal to clarify any doubts you may have.

Marcella Hill
Partner
T: + 55 11 96913 2871
+ 44 7478 568 672
E: marcella.hill@cmalaw.com

Alex Moreira Jorge 
Partner
T: +55 11 3077-3515
E: alex.jorge@cmalaw.com

Paulo Takafuji
Associate
T: +55 11 3077-5634
E: paulo.takafuji@cmalaw.com