. /.  WORLD TRADE  
ORGANIZATION   
G/TRIMS/W/110 
20 September 2012 
 (12-5071) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
BRAZIL – TAX PREFERENCES TO DOMESTICALLY  
MANUFACTURED AUTOMOTIVE VEHICLES 
 
Questions from AUSTRALIA and the EUROPEAN UNION 
 
 
 The following communication, dated 20 September 2012, is being circulated at the request of the Delegations of Australia and the European Union.  
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  The issue of Brazil's increase in its Industria l Product Tax (IPI) on the automotive sector, first 
announced by the Brazilian Government in Septembe r 2011 in its Government Decree No 7567, was 
first raised in the Committee on Market Access in Oc tober 2011 and later in the three meetings of the 
Council for Trade in Goods of November  2011, February 2012 and March 2012. 
 
 In response to the concerns expressed by the EU, Australia and several other Members over the measure, Brazil explained that the measure was a temporary one, due to expire at the end of 2012, 
and that it had been taken under exceptional circumstances.  
 However, on 3 April 2012 Brazil published Medida Provisoria  No 563, which establishes a 
support programme for automobile manufacturing called INOVAR-AUTO.  This new automotive 
regime will replace the current system starting from 1 January 2013.  The new rules are designed to apply over a five-year period, from 2013 until 2017.  The new regime aims at fostering domestic 
manufacturing and technology activities by means of tax preferences that do not extend to third 
country goods, with limited exceptions for Mercosur partners and new investors. 
 
 The programme essentially consists in IPI tax credits, available for companies that comply 
with a number of criteria, detailed in Decreto  No 7716 of 13 April 2012. 
  Like several other WTO Members, the EU a nd Australia are concerned about the Brazilian 
decision to grant a tax advantage to vehicles which contain at least 65% of local content.  The new 
automotive regime 2013-2017 "INOVAR AUTO" indeed maintains the requirement to use domestic 
(or Mercosur) inputs over imported goods in  order to benefit from tax benefits. 
  In EU and Australia's views, the measure app ears to be incompatible with basic WTO rules, 
including GATT Article III:4 and TRIMs Article 2. 1, since it accords less favourable treatment to 
imported goods than to domestic products.  
 
Question 1 
 
 Can Brazil please confirm if Medida Provisoria  No 563 has been adopted and confirmed by 
Congress?  
 G/TRIMS/W/110 
Page 2  
 
   Can Brazil please explain if any implementi ng regulation of the new programme will be 
adopted?  
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); 
 
3) expenditures in Brazil relating to engi neering, basic industrial technology and 
development of suppliers expressed as a per centage 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? 
 
Question 3  
Can Brazil please provide the definition of  Research & Development expenditure? 
 
Question 4 
 
Can Brazil please provide the definition of e xpenditure on "Engineering, basic industrial 
technology and supplier development"? 
 
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 IP I 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 manufacture in  Brazil will benefit from tax credits or other tax 
benefits on any number of imported vehicles? 
 
Question 6  
 
 Decreto No 7567 effectively established eligibility for assistance to automotive 
manufacturing and investment and planned investme nts 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 invest ment projects by companies establishing a 
manufacturing presence in Brazil (as a result of Decreto No 7567)? 
 
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