Modifications to Brazilian Drawback Regime Expected to Benefit Industry
A recent change to Brazil’s suspension drawback regime is expected to make it easier for companies to take advantage of this cost-saving tool.
The Brazilian Secretariat of Foreign Trade (SECEX) and the Secretariat of the Federal Revenue of Brazil (RFB) have issued a regulation (Joint Directive RFB/SECEX 1618/2014) amending the integrated suspension drawback regime established under Joint Directive RFB/SECEX 467/2010. This regime provides for the suspension of taxes such as the import duty, federal value-added tax (IPI), PIS-import and COFINS-import social contributions, and state VAT (ICMS) for raw materials imported or acquired in the domestic market, as long as they are used in the manufacture of a product that is subsequently exported. Once the exportation of the product takes place the tax suspension becomes an exemption, improving the company’s cash flow.
One of the most important provisions included in the new regulation is a modification to the inventory control of goods under the suspension drawback regime. The Brazilian industry has long called for this change because of different interpretations by Customs in administrative cases. The new rules clarify that companies are not required to physically segregate goods imported or purchased domestically under suspension drawback from identical or equivalent goods of the same kind, quality and quantity imported or purchased domestically under the regular import regime (e.g., a bolt imported under drawback suspension can be stored or mixed with bolts acquired in the local market). This modification is expected to help all companies operating under suspension drawback, although chemical producers who find it particularly difficult to segregate raw materials in their inventory due to the nature of those materials are expected to reap the most benefits.
The new regulation also clarifies that to be considered as “equivalent in kind and quality” the goods must (1) be classified under the same tariff code, (2) perform the same functions, (3) be obtained from the same materials, (4) be sold at equivalent prices, and (5) have the same specifications (dimensions, characteristics, physical properties, etc.) that render them suitable to be employed or used in the manufacture of the product to be exported.