Tax | Understand the Brazilian Taxation of “Back to Back” Transactions

The triangular purchase and sale transaction, in which a Brazilian company buys a product abroad to resell it to a third party also abroad, without the good physically passing through national territory, is called “Back to Back”.

This operation is not explicitly provided for in Brazilian legislation, but it is recognized by both the Central Bank’s rules and the Internal Revenue Service’s rules, and is classified as a financial and non-tax operation, since the legislation governing it does not require the preparation and issue of typical foreign trade documents, such as the Entry Registration Book (LRE), the Exit Registration Book (LRS), the Digital Tax Bookkeeping (EFD), the Import Declaration (DI), the Export Registration (RE) and the Electronic Invoice (NF-e).

Although it is not considered a tax operation, over the years several doubts have arisen regarding the taxation of PIS and COFINS, since we are dealing with the acquisition of goods abroad (assimilated to import), and the sale of these goods abroad (assimilated to export).

PIS-Import, Cofins-Import, ICMS, IPI and Import Tax (II) are not levied on purchases made abroad, since these taxes are levied when foreign goods enter national territory, which is not the case here. The biggest controversy lies in the sale of the goods, which could be considered an export and enjoy the tax benefits provided for in the Federal Constitution.

However, the Federal Revenue Service and the Judiciary have taken the view that the benefits related to exports are discarded, and PIS and Cofins taxes will be due as usual, as the goods do not actually leave national territory, nor do they even physically transit, so they are not exports.

Although the administrative and judicial position so far has been unfavorable to taxpayers, the Federal Supreme Court has yet to rule on the matter.


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