BRAZIL: AMBASSADOR'S MEETING WITH TAX AND CUSTOMS CHIEF

UNCLAS SECTION 01 OF 02 BRASILIA 001971 SIPDIS SENSITIVE SIPDIS STATE PASS USAID FOR LAC NSC FOR FEARS TREASURY FOR OASIA - J.HOEK AND TAX OFFICE - P.BROWN STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA DHS FOR ICE E.O. 12958: N/A TAGS: EFIN ETTC PGOV PREL EINV BR SUBJECT: BRAZIL: AMBASSADOR'S MEETING WITH TAX AND CUSTOMS CHIEF RACHID (U) This cable is Sensitive but Unclassified, please protect accordingly. ¶1. (SBU) Jorge Rachid, Secretary of Brazil's Receita Federal, the finance ministry agency which oversees both tax collection and customs, assured the Ambassador in a September 14 meeting of the GoB's continued intent to work closely with the USG on security and law enforcement, including through the Container Security Initiative (CSI). Rachid said he would welcome a visit by DHS Secretary Chertoff. Rachid raised ongoing informal discussions between Receita and Treasury on a potential tax treaty, noting that there were large hurdles to be overcome. The Ambassador urged that Receita participate actively in the Commercial Dialogue that Commerce Secretary Gutierrez and Minister of Development, Industry and Trade Furlan had launched. In a follow-up conversation September 15, Rachid's international affairs advisor told Econoff that Receita would be pleased to send representatives to visit U.S. Customs operations and view express delivery service operations. End Summary. Security/Law Enforcement -------------- ¶2. (SBU) The Ambassador thanked Rachid for Receita's close cooperation on law enforcement and security. Rachid, a career official who started out as an auditor, said that Receita's goal is to facilitate commerce while maintaining appropriate security and enforcement measures in place. Rachid noted Brazil's participation in CSI and said he would welcome a visit to Brazil by DHS Secretary Chertoff. The Ambassador suggested that it would be useful for Rachid to send a senior representative to Washington DC ahead of any such a visit in order to more sharply focus the agenda. Rachid agreed. Tax Treaty -------------- ¶3. (SBU) Rachid raised ongoing informal discussions over the potential for a bilateral tax treaty. He cautioned, despite the enormous interest in a treaty by Brazilian and U.S. businesses, that neither party allow expectations to get ahead of reality, for there are serious differences to overcome. The GoB's two primary concerns, he said, were the potential for revenue loss given the mismatch in investment stocks and flows between the two countries, as well as what he called an "adjustment mechanism," which if not granted by the U.S., would create a problematic precedent for other Brazilian tax treaties. (Comment: Rachid appeared to be referring to the issue of "tax sparing," which Brazil has in the past insisted on including in its tax treaties.) Despite these two major points, Rachid expressed confidence in the professionalism of the negotiating teams and their ability to bridge the gaps. The teams were systematically tackling and resolving all other issues, including that of information sharing, Rachid said. The Ambassador urged that the teams not let the process grind to a halt once the easy agreements had been achieved. Business Facilitation/Customs Issues -------------- ¶4. (SBU) The Ambassador briefed Rachid on the Commercial Dialogue launched by Secretary Gutierrez and Minister Furlan. One of the main areas of discussion in the business facilitation working group, he noted, was to identify ways to give greater celerity to trade flows. U.S. Customs, the Ambassador said, had invited Receita representatives to visit their operations on the border with Canada, where quick large-scale cargo clearing was key to the integrated functioning of the automotive industry in both countries. The visit also would include a stop at the operations center of a large express delivery company, to view how Customs worked hand in hand with industry to facilitate their operations. Rachid professed to be unaware of the invitation, but welcomed the idea. In a follow-up conversation September 15, Rachid's International Affairs Advisor, BRASILIA 00001971 002 OF 002 Zayda Bastos, told Econoff that Receita would be pleased to accept the invitation. ¶5. (SBU) Rachid reaffirmed his willingness to work with the USG to facilitate trade flows. Although there are many agencies involved in the process of clearing imports and exports, he stated, "if you have a problem with customs, bring it to me". Rachid noted that Receita already is working on methods to address some of the bottlenecks that hinder express delivery services in Brazil. They currently are working on getting Receita's computer system to communicate directly with the companies' systems, a key step to reducing clearance times. ¶6. (SBU) Comment: Given Rachid's apparently genuine willingness to hear our issues, this direct channel of communication at a senior level would seem to be a useful way to advance the Commercial Dialogue. SOBEL