G/TRIMS/W/118  
 
17 April 2013  
(13-2031)  Page: 1/2  
Committee on Trade-Related Investment Measures  Original: English  
 
BRAZIL – TAX PREFERENCES LINKED TO LOCAL 
CONTENT CONDITIONS IN SEVERAL SECTORS  
QUESTIONS FROM THE EUROPEAN UNIO N, THE UNITED STATES AND JAPAN 
The following communication, dated 15 April 2013, is being circulated at the request of the 
Delegations of the European Union, the United States and Japan.  
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There are concerns about what appear to be discr iminatory provisions against imported goods in 
certain measures adopted by Brazil in the area of indirect taxation. There are further concerns that 
such provisions may be a reflection of a broader policy approach to indirect taxation and industrial 
policy.  
Brazil has indeed adopted a number of tax progra mmes granting tax benefits to companies that 
meet certain local content requirements (i.e. requir ements to rely on inputs sourced in Brazil). 
There are several examples of this kind of tax programmes particularly since the end of 2011, 
when Brazil imposed a large sales tax increase (30 percentage points) on motor vehicles that did 
not comply with a high local content threshold, set at 65%. In spite of reassurances that the tax increase was temporary and would expire in December 2012, Brazil set up a new tax programme that is intended to run until 2017. The new tax programme for motor vehicles results in an 
important degree of tax discrimination against imported motor vehicles, and seems to be designed 
to encourage the use of domestic components to the detriment of imported input.   
In parallel, Brazil has taken steps to implement similar tax programmes in relation to other goods. 
Law 12.715 of 17 September 2012, which establishes the new tax programme for motor vehicles in its final form, also foresees a comparable regime for telecommunication network equipment. 
Among other elements, it also provides for a tax regime on certain digital goods that appears to 
discriminate against imported goods, and it reinforces a tax scheme on semiconductors and related goods by increasing the local content requirements.  
Therefore the views of Brazil would be welcome, pa rticularly on tax advantages that appear to be 
contingent on the use or sourcing of goods in Brazil, based on the questions below. These questions are aimed at seeking clarifications about Brazil’s policy; they should not be regarded as 
exhaustive of the concerns of the Europe an Union, the United States and Japan. 
 1. Law n°12,794 of 2 April 2013 establishes a special tax regime aimed at the development of 
the fertilisers industry, which foresees a suspension of indirect taxes on machinery, tools and other 
equipment acquired by the beneficiaries of the re gime. As a condition to benefit from the regime, 
it is mandatory to achieve a certain percentage of "local content" ("conteúdo local") in relation to the overall value of the investment project (Article 7).  
 
- Could Brazil provide its views on the consistency of the mentioned tax regime with the 
TRIMs agreement, particularly in light of point 1(a) of the Illustrative list in Annex of 
the Agreement? 
 2. Law n°12,715 of 17 September 2012 (Articles 28 to 33) establishes a special tax regime 
aimed at supporting the development of projec ts for the establishment, enlargement or 
modernisation of telecommunications broadband networks, including terrestrial satellite stations. As a condition to benefit from the regime, which foresees tax breaks on indirect taxes, it is G/TRIMS/W/118 
 
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  mandatory to acquire network equipment and components produced in accordance with so-called 
Basic Production Processes (PPB, in Portuguese), for a value exceeding a minimum percentage laid down in implementing regulations. In this regard:  
- Could Brazil confirm that PPBs lay down rules concerning the production of goods in 
Brazil? 
 
- Could Brazil confirm that, for any given good to comply with the rules laid down in the 
relevant product PPB, it must be produced in Brazil? 
 
- Could Brazil provide its views on the consistency of the mentioned tax regime with the 
TRIMs agreement, particularly in light of point 1(a) of the Illustrative list in Annex of 
the Agreement? 
 
3. Law n°12,715 of 17 September 2012 (article 57) introduced modifications to a previously 
existing tax regime aimed at promoting the develo pment of the semiconductors industry in Brazil. 
Beneficiaries must comply with certain conditions in order to get access to certain tax advantages 
(tax breaks on indirect taxes). The regime is tailored for companies which, inter alia, produce 
inputs and equipment for the manufacturing of semiconductor electronic devices and of information displays in accordance with Basic Production Processes or PPBs. In this regard: 
 
- Could Brazil confirm that PPBs lay down rules concerning the production of goods in 
Brazil? 
 
- Could Brazil confirm that, for any given good to comply with the rules laid down in the 
relevant product PPB, it must be produced in Brazil? 
 
- Could Brazil provide its views on the consistency of the mentioned tax regime with the 
TRIMs agreement, particularly in light of point 1(a) of the Illustrative list in Annex of the Agreement? 
 
4. Could Brazil confirm that the tax benefits foreseen in Law n°8,248 of 23 October 1991, 
together with its successive modifications, are prem ised on the respect of the production rules set 
out in product-specific Basic Production Processes or PPBs? Beyond the specific instances 
mentioned in the previous questions, could Brazil inform whether it has put in place other tax 
regimes that foresee tax advantages linked to the respect of Basic Production Processes or PPBs? Could Brazil provide references to specific legislative instruments? 
 
5. Law n°12,715 of 17 September 2012 (Articles 40 to 44) established a special tax regime for motor vehicles. The regime seeks to foster the production of vehicles and the strengthening of the supply chain in that sector through tax incentives consisting in tax credits that can be used to 
offset up to 30 percentage points of the applicable  IPI rates. In order to benefit from the regime, a 
number of conditions need to be fulfilled: among others, producers have to perform an increasing 
number of manufacturing activities in Brazil, related to the production of certain components. The 
system is in principle open to motor vehicle manufacturers already established in Brazil; to motor 
vehicle manufacturers with an investment plan to start or expand production in Brazil; and to companies that market motor vehicles. However, tax credits are earned on the basis of 
expenditures in Brazil –mostly in relation to expenditure in Brazil related to the purchase of 
strategic inputs and tools.  
 - Could Brazil explain whether beneficiaries from the tax regime can earn tax credits by 
purchasing imported inputs and tools, on the basis of the applicable legal provisions? 
 - If the answer is negative, could Brazil provide its views on the consistency of this 
aspect of the tax regime with the TRIMs agreement, particularly in light of point 1(a) 
of the Illustrative list in Annex of the Agreement? 
 
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