The Brazilian Private Pension (RPC) US Tax, FBAR & FATCA

Brazilian Private Pension (RPC) US Tax, FBAR & FATCA

The Brazilian Private Pension Scheme operates similarly to other foreign pension plans across the globe. Technically referred to as a Complementary Pension Regime or Regime de Previdência Complementar aka RPC – its purpose is to provide support to taxpayers in Brazil when it comes time to retire. Since these are considered private pensions, they are usually managed by private companies and may be tied to various insurance or assurance products as well (this is similar in countries such as Singapore). The key issue for the Brazilian Private Pension Plan from a US Tax perspective is that when a US Person has a Brazilian Private Pension, they will have both. US tax and international reporting consequences. Moreover, since there is no treaty with Brazil the income generated is not tax-deferred and various PFIC exceptions such as the Tax Treaty/Pension exception would not apply. Let’s review the basics of the Brazilian Private Pension (RPC) for US Tax, FBAR & FATCA

What is the Regime de Previdência Complementar?

 As Provided by the Brazil Ministry of Labor and Welfare:

• • • The Complementary Pension Scheme – RPC aims to offer additional protection to workers during retirement. It is, therefore, an additional social security security to that offered by public social security, for which workers’ contributions are mandatory.

    • Adherence to the RPC is optional and not linked to public security (General Social Security System – RGPS or Special Social Security Regime – RPPS ), as provided for in article 202 of the Federal Constitution. In this context, the RPC has specific rules established by Complementary Laws 108 and 109 , both dated 05/29/2001, and other regulations.

    • In the RPC, the retirement benefit will be paid based on the reserves accumulated individually over the years of contribution, that is, what the worker has contributed throughout his working life will form the savings that will be used in the future for the payment of his benefit. . This system is known as Capitalization Regime .

    • The RPC is composed of two segments: the open one, operated by the Open Private Pension Entities – EAPC and Life Insurance Companies, and the closed one, operated by the Closed Supplementary Pension Entities – EFPC . Each segment has its own specificities and characteristics, being supervised by specific government bodies, the one closed by the National Superintendence of Complementary Pensions – Previc and the one opened by the Superintendence of Private Insurance – Susep.

    • The EFPC, popularly known as Pension Funds, administer private pension benefit plans for individuals who have an employment or association relationship with companies, public bodies, unions and/or representative associations. Most of the open segment entities offer private pension plans accessible to any individual.

    • The Subsecretariat of the Supplementary Pension Scheme – SURPC, linked to the Ministry of Economy’s Pensions Secretariat, is the body that formulates, articulates and monitors the policies and guidelines of the RPC, in addition to having as an institutional mission the improvement of legislation and the promotion of harmonious development of the Complementary Pension Scheme.

Foreign Mutual Funds in a Brazilian Private Pension (RPC)

Foreign Mutual Funds within an RPC can lead to an unnecessarily complex tax scenario. For example, ownership of Foreign Mutual Funds within the RPC could lead to the dreaded PFIC tax situation (Passive Foreign Investment Company) – which results in tax-deferred treatment during the growth phase but then during the distribution time, taxpayers can end up paying double to triple what they would’ve paid if it was a US mutual fund.

Brazilian Private Pension with Foreign or Domestic Stock, Bond, or US Mutual Fund

In general, whether stocks are US-based or foreign-based, accrued income will be taxed even during the growth phase. That is because the United States does not recognize an RPC  for tax deferral purposes, as there is no tax treaty with brazil – and therefore even though the stock and bonds may be wrapped in a Brazilian pension plan, they would still presumably be taxable.

FBAR, FATCA & PFIC Reporting for (RPC)

Since technically the RPC is a foreign financial account, it is reportable on one or more international information reporting forms, such as the FBAR (FinCEN Form 114) and FATCA (Form 8938). The FBAR and Form 8938 or not mutually exclusive from each other — and therefore taxpayers may be required to file the FBAR on both forms. If the foreign investment also contains items such as mutual funds, ETFs, or SICAVs, then the investment may become subject to Passive Foreign Investment Company reporting on form 8621. There are some potential exceptions and exclusions from reporting on 8621, but they are limited.  In addition, the Internal Revenue Service does not require duplicative reporting of the same asset on Form 8938 and Form 8621— although if the taxpayer has multiple types of investments and categories of investments — both forms may still be required. While the failure to report these accounts may result in significant fines and penalties, the Internal Revenue Service has developed various amnesty programs to assist taxpayers with safely getting into compliance with a reduced penalty, or even a complete penalty waiver.

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