| ||Published in September 26, 2017 the IRS Normative Ruling 1,743 (IN RFB 1,743) regulating the special custom regime for economic use destined to assets that will be used in oil and gas exploration, development and production (E&P) activities (“REPETRO-SPED”), as recently amended by the Provisional Measure 795/2017.|
The changes vis-à-vis the current regime are extensive, below we list the main ones:
Application and Conditions
Apart from the application on the notion export and subsequent importation under the regime and of the temporary importation with full suspension of the federal taxes of assets with unit value above USD 25,000 (as listed by Annex II of IN RFB 1,743), the REPETRO-SPED will be applied to:
• importation of assets that will permanently stay in the country with full suspension of federal taxes, as listed by Annexes I and II of the Normative Ruling for a five-year period. After such term, the relevant suspension will be converted into exemption for the II and IPI and zero rated for PIS and COFINS purposes. Note that the Normative Ruling provides for a deadline for this modality up to December 31, 2040, while according to the Provisional Measure 795, the deadline is July 31, 2022; and
• Importation or acquisition in the local market of raw materials, intermediary products and package materials, with II (if applicable), IPI, PIS and COFINS suspension, to be used entirely in the manufacturing of a final product destined to the E&P activities.
The REPETRO-SPED items were listed with the inclusion of the Tariff Classification (NCM) code, among them, we highlight the possibility of the regime application to also the offloading vessels.
Apart from the listed assets, the REPETRO-SPED will apply to: (i) apparels, parts and pieces directly incorporated to the main assets listed by the annexes, and destined to secure the relevant operationally; and (ii) tools used directly in the maintenance of the listed assets (in this case the USD 25,000 limit does not apply).
Among the conditions for the application of the regime, the REPETRO-SPED is prohibited in the temporary importation for economic use, with or without the pro-rata payment of the federal taxes, when:
• The total value of the payments of the bareboat hire, rent, assignment, disposal or leasing agreement, with net present value assessed by the LIBOR (12 months) enforced upon the signature of the contract, is superior to the value of the assets related to the specific contract, including when the parties pertain to the same economic group.
• The agreement supporting the regime has a purchase option for the vessel;
• The rental, assignment, disposal or leasing agreement does not contemplate the full individualization or unit value for the relevant assets;
• Assets under rental, assignment, disposal, leasing and bareboat charter agreement which are not directly imported by the operator and of service company;
• The supply agreement contains assets that will be consumed during the service provisions.
Production Platforms and FPSOs
IN RFB 1,743 provides for conditions on the importation under temporary admission without the payment of federal taxes for production platforms and floating production and storage units for oil and gas (Tariff Codes 8905.20.00 or 8905.90.00):
• Charter, leasing or rental agreement for the asset combined with the operational service agreement are entered between non-related parties; or
• the asset is used temporarily in production tests or in anticipated production systems, in oil exploration well and fields up to 4 years, not allowed any relevant extension.
Habilitation and Application
In the modalities of importation of goods for permanent stay and temporary admission for economic use with exemption of payment of federal taxes, the IN RFB 1,743 included provision for conclusion of the REPETRO-SPED request or extension analysis must be concluded within 30 days, which can be interrupted, by the request of additional documents, within 10 days.
In case the analysis is not concluded within the stipulated timeframe, the qualification may be granted ex officio, regardless of the interested party’s statement.
The customs legislation innovated when it no longer demanded the posting of a guarantee in a value equivalent to the amount of the federal taxes for importation of vessels or platforms/rigs, or for goods under a service turnkey contract, as long as it does not includes instalments related to lease, assignment, availability or lease of goods.
Other relevant point related to the qualification to REPETRO-SPED is the dismissal of sworn translation and registry for documents in foreign language, which, when required by the tax authority, can be replaced by a simple translation, when needed for the understanding of its content.
Postponement of the Term and Change of Purpose of the Regime
IN RFB 1,743 ruled in more details the procedures for extension of the REPETRO-SPED and the change of purpose for utilization / transfer of contract of assets admitted under the regime.
The regime extension must be formalized directly in the administrative proceeding of control the REPETRO-SPED, upon presentation of the relevant documentation and a spreadsheet for the consolidation of assets admitted under the regime. The same applies to change of purpose/transfer of contract of goods.
Storage of Assets Outside Custom Bonded Area
IN RFB 1,743 provides for the possibility to storage assets which are not used in the E&P activities in deposits outside custom bonded area for the term required for the beginning or return of the activities or to the regime extinction, provided that the requirements are followed.
Permanence of the Vessels and Platforms in Temporary Admission in Brazil
The Article 18 of IN RFB allows that possibility of vessels and platforms remain docked or anchored outside custom area under temporary admission regime, before the concession of after the extinction of the regime while the beneficiary awaits for a new contract, up to 3 years and subject to prior habilitation.
For this purposes, the beneficiary is not required to submit any authorizing documentation from the Navy, Maritime Court or National Waterway Transportation Agency (ANTAQ), without prejudice of the relevant compliance with the respective bodies.
In relation to the effects produced by the IN RFB 1,743, note that the qualifications for the REPETRO regime granted until the date of its publication will remain in force until the final concession deadlines already laid down.
With respect to the requests filed before publication of referred Normative Ruling, they will be analysed and decided according to the terms of the rules in force at the time of presentation of the respective applications.
The goods admitted until December, 2017, or whose request of application to the REPETRO had been filed until this date, will remain subject, until December 31, 2020, to the REPETRO rules in force, however, its migration to the REPETRO-SPED will be authorized between January 1st and December 31st, 2018, provided that the requirement and conditions of the regime be fully met.
As to the initial concession requests, new admission, stay/permanence at a non-bonded location or extinction of application of the regime filed after December 31, 2017, the rules relative to the REPETRO-SPED will be applied.
Application of the REPETRO-SPED for Vessels in Coastal Navigation
Finally, please note that as of January 1st, 2018, the rule dealing with the REPETRO-SPED will be applicable to vessels in coastwise navigation transporting persons or carrying goods for involved companies, directly or indirectly involved in activities of research and mining of oil and natural gas wells.