WORLD TRADE  
ORGANIZATION   
G/TRIMS/W/114 
5 October 2012 
 (12-5396) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
BRAZIL – TAX PREFERENCES TO DOMESTICALLY  
MANUFACTURED AUTOMOTIVE VEHICLES 
 
Replies to Questions from AUSTRALIA and the EUROPEAN UNION
1 
 
 
 The following communication, dated 3 October 2012, is being circulated at the request of the Delegation of Brazil.  
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Question 1 
 
 Can Brazil please confirm if Medida Provisoria  No 563 has been adopted and confirmed 
by Congress?  
 
 Can Brazil please explain if any implementing regulation of the new programme will be adopted? 
 Reply 
 
 Medida Provisória No 563, of 5 April 2012 , as amended in the Senate and in the Chamber of 
Deputies, has been approved by Congress and c onverted into Federal Law No. 12.715, of 17 
September 2012. 
  Several other implementing measures, such as Federal Decrees and other administrative regulations ( Portarias Interministeriai s, Instruções Normativas , etc.) will be issued over the course of 
the next months in order to compleme nt the legal framework of the regime. 
 
Question 2 
 
 According to Decreto  No 7716 of 13 April 2012, in order to benefit from the tax benefits 
of the new programme, a car maker must meet at  least three of the following four conditions: 
 
1) performance in Brazil of major manufacturing activities for at least 80% of the 
vehicles produced by the company;  
 
2) increasing expenditure on R&D activities in Brazil, expressed as a percentage of 
the company's turnover (from 0.15% in 2013 to 0.5% starting from 2015); 
 
                                                      
1 G/TRIMS/W/110.   G/TRIMS/W/114 
Page 2  
 
  3) expenditures in Brazil relating to en gineering, basic industrial technology and 
development of suppliers expressed as a percentage of the company's turnover (from 0.5% in 2013 to 1% from 2015 onwards); 
 4) participation in the Brazilian Vehicle Marking Programme (PBEV) for an 
increasing percentage of the company's production (from 25% in 2013, to 100% 
in 2017). 
  Can Brazil please explain how a company that does not meet the first condition, i.e. manufacturing in Brazil, may be nefit from the INOVAR-AUTO? 
 
Reply 
  Decreto No. 7.716, of 13 April 2012,  will be replaced by a to tally different regulatory 
framework - Federal Decrees and other regulations – to  be issued in the next few days and based upon 
the parameters established at the Federal Law No. 12.715, of 17 September 2012.  This new set of 
regulation will establish the specific conditions unde r which three categories of eligible companies 
can benefit from the incentives of INOVAR-AUTO:   (i) companies that manufacture automotive 
products in Brazil;  (ii) companies that trade auto motive products in Brazil;  and (iii) companies with 
investment plans approved by the Ministry of De velopment, Industry and International Trade.  
Companies that only trade automotive products will not subject to the manufacturing requirements, 
but will have to fulfill other conditions in order to benefit from INOVAR-AUTO. 
 
Question 3 
 
Can Brazil please provide the definition of Research & Development expenditure? 
 
Reply 
  For the purpose of INOVAR-AUTO regime, Research & Development expenditures 
encompass investments that allow the developm ent of innovative products, processes or systems 
through the following activities:  (i) basic research  (ii) applied research;  (iii) experimental 
development;  and (iv) technical support services.   
Question 4 
 
Can Brazil please provide the definition of expenditure on "Engineering, basic 
industrial technology and supplier development"?  
Reply 
  Expenditures on engineering, basic industrial  technology encompass several activities, such 
as:  engineering development;  training of pers onnel on research, develo pment of products and 
processes, innovation and implementation;  developmen t of products, including vehicles, systems and 
their components, auto parts, machinery and equipm ent;  construction of labor atories of development 
of technologies in automotive safety;  constr uction of laboratories of development of new 
technologies on the reduction of polluting gas emissi ons and environmental,  climatic and sound 
controls;  construction of laboratories of deve lopment of style and design;  construction of 
laboratories for calibration and testing services;  development of new indus trial and quality control 
instruments and equipments.   G/TRIMS/W/114 
 Page 3 
 
 
  Question 5 
 
 According to Decreto  No 7716 of 13 April 2012, companies that are planning 
investments in Brazil, by way of derogation, may benefit from IPI tax credits also on a certain 
number of imported vehicles, corresponding to 50%  of the projected production volume of their 
new investment. 
  Can Brazil please explain if companies that will not be able to meet the criteria of the 
programme or that are not planning to manufac ture in Brazil will benefit from tax credits or 
other tax benefits on any number of imported vehicles? 
 
Reply 
 
 As explained in answer to Question 2 above, Decreto No. 7.716, of 13 April 2012 , will soon 
be replaced by new legislation.     Accordingly to the recently enacted Federa l Law No 12 715/2012 mentioned in answer to 
Question 1, all three categories of companie s eligible for INOVAR-AUTO (companies that 
manufacture automotive products in Brazil;  compani es that trade automotive products in Brazil;  and 
companies with investment plans approved by the Ministry of Development, Industry and International Trade) will benefit from the incen tives of INOVAR-AUTO, including tax benefits on 
the importation of vehicles, subject to the require ments applicable to each category of eligible 
companies. 
 
Question 6  
 
 Decreto No 7567 effectively established eligibility for assistance to automotive 
manufacturing and investment and planned invest ments in Brazil.  Can Brazil please clarify the 
relationship between Decreto No 7567 and Decreto  No 7716 which appears to capture both 
existing Brazilian automotive manufacturers and new investment projects by companies 
establishing a manufacturing presence in Brazil (as a result of Decreto No 7567)? 
 
Reply 
  Decreto No 7.716/2011 and Decreto No 7.567, of 15 September 2011  (due to expire in 
31 December 2012) will be superseded by a new Fede ral Decree to be issued in the next few days. 
  The new features of the regime established by Federal Law 12.715/2012 apply to the 
three categories of eligible companies descr ibed in answers to Questions 2 and 5. 
  
 
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