G/TRIMS/W/124  
 
28 May 2013  
(13-2809)  Page: 1/3  
Committee on Trade-Related Investment Measures  Original: English  
 
BRAZIL – TAX PREFERENCES LINKED TO LOCAL 
CONTENT CONDITIONS IN SEVERAL SECTORS  
REPLIES TO QUESTIONS FROM THE EUROPEAN UNION, 
THE UNITED STATES AND JAPAN 
The following communication, dated 27 May 2013, is  being circulated at the request of the 
Delegation of Brazil. 
 
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Question 1 
 Law n°12,794 of 2 April 2013 establishes a spec ial 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 bene ficiaries of the regime. 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, particular ly in light of point 1(a) of the 
Illustrative list in Annex of the Agreement? 
 
Reply 
 
Article 7 of Law 12.794 2 of April 2012 sets out technology and production requirements for the 
tax benefits that aim to attract investments in research, development and technological innovation 
as well as the performance of productive steps in Brazil. The value added requirement contained in Article 7 is meant to ensure that technology will be effectively internalized in the production chain. Moreover, the measure does not require the purchase or use of domestic products. The pertinent 
Decrees and Ministerial acts are still in discussion and have not yet come into force.  
 Question 2 
 
Law n°12,715 of 17 September 20 12 (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 mandatory to acquir e network equipment and components produced 
in accordance with so-called Basic Producti on Processes (PPB, in Portuguese), for a 
value exceeding a minimum percentage laid do wn 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? 
 G/TRIMS/W/124 
 
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  - Could Brazil provide its views on the consistency of the mentioned tax regime 
with the TRIMs Agreement, particular ly in light of point 1(a) of the 
Illustrative list in Annex of the Agreement? 
 
Reply 
 
Brazil considers that Members, within the boundaries of the WTO Agreements, may – and in fact 
do –, regulate productive steps, so as to create the appropriate conditions for the development of 
technology-intensive sectors, such as telecommunications, which require significant know-how in the different steps of production of equipment and provision of services. 
 
In our view, Members of the WTO have the discretion of determining productive steps in different 
stages of the production chain. In our view, Brazil believes that the measures are fully consistent with the WTO Agreements, as nothing in the Agreem ents should be read as prohibiting a Member 
to establish conditions on production or on technolo gy in a certain territory or to define levels of 
production or of technology thereupon. Nor should  it prevent a Member to have the discretion of 
determining productive steps in different parts of the chain of production. If not, Members’ 
development policy would be significantly curtailed, relegated only to the final assembly of the 
final good.  Question 3 
 
Law n°12,715 of 17 September 2012 (article  57) introduced modifications to a 
previously existing tax regime aimed at promoting the development of the 
semiconductors industry in Br azil. 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 a lia, produce inputs and equipment for the 
manufacturing of semiconductor electronic devices and of information displays in 
accordance with Basic Production Pr ocesses 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, particular ly in light of point 1(a) of the 
Illustrative list in Annex of the Agreement? 
 Reply 
 PPBs lay down a set of certain manufacturing steps that characterize the effective industrialization of a product and is not directly related to the domestic origin of a product. If production and 
technology requirements could not be set, investment would have to restrict itself to the mere 
assembly of parts, effectively preventing the autochthonous development of technology and the 
training of skilled workers. 
 
Question 4  Could Brazil confirm that the tax benefits foreseen in Law n°8,248 of 23 October 1991, 
together with its successive modification s, are premised on the respect of the 
production rules set out in product-specific Basic Production Proce sses or PPBs? Beyond 
the specific instances mentioned in the prev ious 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? Coul d Brazil provide references to specific 
legislative instruments? 
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  Reply 
 
As pointed out by the question, PPBs have exis ted for over twenty years and constitute an 
important technology development tool. The primar y legal basis for the PPBs is Law 8.248 of 1991 
but its features vary from situation to situation and the tax regimes applied are established on a 
case-by-case basis. See answer to Question 3.  
Question 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 f oster the production of vehicles and the 
strengthening of the supply chain in that sect or 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 increa sing number of manufacturing activities in 
Brazil, related to the production of certain components. The system is in principle open 
to motor vehicle manufacturers already es tablished in Brazil; to motor vehicle 
manufacturers with an investment plan to st art or expand production in Brazil; and to 
companies that market motor vehicles. Howeve r, 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 beneficiar ies from the tax regime can earn tax 
credits by purchasing imported inpu ts 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? 
 
Reply 
 
Article 41 of Law 12.715 gives tax credits both to accredited companies producing or importing automobiles in Brazil in a manner consistent with WTO Agreements. The beneficiaries are entitled 
to choose freely which expenditures listed under the Law they may incur in order to acquire the 
credit. The specific details on how the regime operates and how the requirements should be fulfilled are still under discussion. 
 
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