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Assets abroad Scheme sheds light on billions of undeclared Brazilian assets


Brazilian tax-payers have admitted owning some CHF50.6 billion ($52 billion) in previously undisclosed assets overseas, with Switzerland seen as one of the top potential destinations for stashing the money.

The revelation came after a Monday, October 31 deadline on a repatriation scheme run by the federal revenue office, ‘Receita Federal’.

The programme came into effect in mid-January this year, after a law on tax amnesty was approved by then president Dilma Rousseff. The legislation piece granted companies and individuals, with a registered tax address in Brazil, the opportunity to find redemption from fiscal sins.

All those holding undeclared assets in foreign institutions by December 31, 2014 were given the chance to be pardoned, in exchange for some 30% of their undeclared wealth: 15% for revenue tax and another 15% on penalty fees.

Adding the taxes and fees together, the Brazilian government was able to raise $15 billion (CHF15.4 billion), which will be mostly used to help cover deficits on regional and national budgets.

It is not yet clear how much of this sum was being hosted in Switzerland. The Brazilian Central Bank will put out a list with a breakdown by country within the coming month, was told last Friday.

Data from 2015 – unrelated to the repatriation scheme efforts – shows that Brazilian investors held around $45.7 billion in currency and deposits at foreign banks.

According to the Brazilian Central Bank, Switzerland is the fifth most popular destination, holding about 3.4% of that amount, a share corresponding to $1.5 billion.

The top-five ranking is composed by the United States (52%), Cayman Islands (23.7%), United Kingdom (5.7%), Bahamas (3.9%) and Switzerland (3.4%).

Last minute

The possibility of a last-minute change in the law and the consequential hope for a deadline extension has kept taxpayers waiting. Only in the last few weeks did the torrent of cases started pouring into Sérgio Mitsui Vilela´s office in Zurich, a lawyer at Bravest international attorneys and accountants.

Vilela estimates that around 40% of his clients are foreigners living in Brazil, who migrated a few decades ago and had forgotten to declare pensions and income earned in Switzerland.

“The taxpayers are not necessarily super wealthy investors. A good part of those joining in the scheme are ordinary Swiss people, who just have not kept track of their accounting”, says Vilela.

A banker, who spoke to under the condition of anonymity, says that the average Brazilian investor profile is rather familiar. The “classic” case is an heir trying to clean up assets inherited from previous generations. “It is money that was hidden away by their predecessors, in times of economic uncertainty in Latin America.”

Cleaning up the portfolio

It is not only liquid assets and the myriad of financial products available in the investment markets that should be disclosed, but also ownership of real estate, cars, aeroplanes, yachts and intangible goods, such as copyright, trademarks and creative rights.

Prestigious banks have seized the opportunity to clean their portfolios of murky money. All clients have been invited to join the repatriation scheme, if not actually coaxed into doing it. They were elegantly reminded that those who decline disclosing assets will have their accounts closed.

Most clients are all too aware of the changes undermining banking secrecy in the near future, anxiously fearing 2018 and the Organisation for Economic Co-operation and Development (OECD)´s Agreement on Exchange of Information on Tax Matters coming into effect.

In that respect, the Brazilian amnesty has been quite generous, allowing for the repatriation of assets marred by corrupt practices such as money laundering, fraud, tax evasion and social pension default. The sole precondition for forgiveness was to not have been previously found guilty of any criminal offense in connection to the amount kept overseas.

The "rush hour" pattern could be clearly inferred from the federal revenue office numbers. Partial forecasts issued in the leading up to the deadline depict this accumulative trend. On October 24, only $33 billion had been reported for regularisation. On October 27, the disclosure had already increased to $46 billion before peaking at the final total of $52 billion by the deadline. Within a week, disclosures soared to almost $20 billion.

Many Brazilian politicians complained about an article in the law that prevented themselves and direct relatives from joining in the scheme. Now, the head of the Brazilian Senate, Renan Calheiros, is considering opening a second round in 2017.

This article replaces an earlier version published on 01.11.2016. with agencies

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