BRAZIL CIVAIR: RESOLVING TAXATION DISPUTE

UNCLAS BRASILIA 001816

SIPDIS

EB/TRA/AN FOR BRIAN GRIMM

E.O. 12958: N/A
TAGS: EAIR KTIA
SUBJECT: BRAZIL CIVAIR: RESOLVING TAXATION DISPUTE

REF: SECSTATE 27268


1. Post has received a diplomatic note from the Ministry of
Foreign Affairs replying to our February 16 note (reftel)
regarding taxation of airlines in the U.S. The Brazilian
note states that, based on our assurance that Brazilian
airlines are not subject to social taxes equivalent to
certain Brazilian taxes, the GoB will extend reciprocal
treatment to U.S. carriers, including the cancellation of
any social taxes levied against U.S. air carriers prior to
August 24, 2001. This has been an issue for one U.S. air
cargo carrier, which had faced a longstanding (and large)
social tax assessment on its Brazil operations prior to the
entry into force of our most recent bilateral aviation
agreement. The bilateral agreement exempts all U.S.
carriers from these taxes. The Ministry of Foreign Affairs
intends to publish the exchange of notes in their equivalent
of the Federal Register, which should allow the affected
U.S. air cargo carrier to have the tax assessment
overturned. An unofficial translation follows in paragraph

2. The original will be pouched to EB/TRA/AN Brian Grimm.


2. Begin text.

URGENT
DSF/DEUC/049/EFIN-ETRA

The Ministry of Foreign Affairs presents its
compliments to the Embassy of the United States of America,
and with reference to your Diplomatic Note No. 54 of
February 16, 2005, notes that, as mentioned in your note,
"Brazilian airline transport carriers operating to the U.S.
have not been and are not now subject to taxes equivalent to
the Brazilian "Contribuicao para o Programa de Integracao
Social (PIS)", "Contribuicao Social para o Fundo de
Investimento Social (FINSOCIAL)" and "Contribuicao Social
para o Financiamento da Seguridade Social (COFINS)."

The Ministry of Foreign Affairs, based on the existence
of reciprocal treatment for Brazilian carriers, is pleased
to confirm that:

a) in accordance with article 14, V, paragraph 1, of
Provisional Measure 2.158-35, dated August 24, 2001, U.S.
air transport carriers that operate in Brazil are exempt
from the tax contributions denominated "Contribuicao para o
Programa de Integracao Social (PIS),and Contribuicao Social
para o Financiamento da Seguridade Social (COFINS)"; and,

b) in accordance with article 4, and its paragraphs, of Law
no. 10.560, dated November 13, 2002, as amended by article
20 of Law no. 11.051, dated December 29, 2004, and
procedures established in Joint Decree PGFN/SRF/no. 6, dated
December 30, 2003, the debt attributed to U.S. air transport
carriers operating in Brazil related to contributions
denominated "Contribuicao para o Programa de Integracao
Social (PIS)", "Contribuicao Social para o Fundo de
Investimento Social (FINSOCIAL)", and "Contruibicao Social
para o Financiamento da Seguridade Social (COFINS)" that
took place up to the day immediately prior to August 24,
2001, the date that art. 14, V, and paragraph 1 of
Provisional Measure no. 2.158-35 took effect, are canceled
and corresponding entries are declared null and void for all
purposes.

End Text.

CHICOLA