Tax & Accounting Blog

Meaningful Changes to REPETRO SPED Could Rebuild the Oil and Gas Sector in Brazil

Blog, Global Trade, ONESOURCE December 15, 2017

Brazil has several customs programs that provide incentives to the oil and gas sectors, one of which is the Special Regime of Incentives for the Development of the Oil Industry Infrastructure, better known by its Brazilian acronym – REPETRO.

REPETRO is a special customs program that was designed for the export and import of goods destined for the research and mining activities of oil and natural gas. The program was created in 1999 with the intention of boosting the oil and gas industries development and production in Brazil.

This special program provides temporary admission of imported goods, such as oil platforms and equipment, for a limited amount of time suspending customs duties for imports used exclusively in the exploration activities, evaluation, development and production of oil and natural gas.

According to statistics published by the Brazilian government, Receita Federal do Brasil (RFB), REPETRO has been important to the oil and gas market in Brazil as noted by the approximately 23% of all customs tariff waivers in the country, surpassing even the Manaus Free Trade Zone.

Since its creation, the Brazilian government has been regularly issuing a series of legal updates and regulations aiming to adapt the special program to the demands inherent in the process of promoting the country’s economic development.

For further context of REPETRO’s evolution, it is crucial to mention a milestone that was reached in 2008 when the oil industry in Brazil experienced exceptional growth due in part by this special program and market demands.

However, since 2012, the use of REPETRO has declined significantly, as noted in the chart.

Imports in REPETRO (CIF value in USD billions per year)

Faced with a challenging economy, and upcoming demands that are expected from the National Petroleum Agency (ANP), the Brazilian government published a decree (No. 9.128 on August 18, 2017) intended to extend REPETRO until the last day of 2040. The Provisional Measure 795 is a legal act in Brazil, in which the president enacts a temporary law without approval by the National Congress, MP 795 provides significant changes in REPETRO. Because of this, both measures demanded the issuance of a new Normative Instruction (IN RFB 1.743) resulting in the renaming of the special program now called REPETRO SPED

Provisional Measure 795 is currently being processed by the National Congress and its deadline for parliamentary approval is 12/15/2017.

  • Some highlights of these provisional measure modifications include:
  • A new method of application to the special program will pertain to the definitive importation of goods with suspension of the payment of federal taxes on importation;
  • Adoption of the SPED [1] for its accounting control in substitution of the current computerized system used to control REPETRO;
  • REPETRO SPED will begin to consider the control of temporary admissions for economic use with proportional payments;
  • Disclosure of the list of goods that can be definitively imported and goods that may be temporarily admitted to the REPETRO SPED program;
  • Exemption from pre-qualification to REPETRO for companies that temporarily admit assets for economic use with proportional payment of federal taxes.

Opportunity for more companies in the sector

With the expansion of the special program, REPETRO SPED is intended to serve a much wider range of companies operating in the oil and gas sector. The program will also reach large companies engaged in the exploration, evaluation, development and production of oil and natural gas, and suppliers of equipment manufacturers.

REPETRO SPED has expanded language to support the following customs transactions:

  • Importation of goods, in permanent character, with suspension of the payment of the federal taxes normally incident on the importation of this type of asset;
  • Temporary importation for economic use with payment of federal taxes proportionally to the time of permanence of the goods in the customs territory;
  • Import or acquisition in the domestic market of raw materials, intermediate products and packaging materials to be used in full in the production process of final product applied to activities in the Oil & Gas area;

Benefits of using REPETROSPED

In addition to the improvement of legislation aimed at solving problems of interpretations of tax treatment, REPETRO’s reassessment prompted some new features:

  • Goods submitted to REPETRO SPED, when not in use, may be stored in a non-bonded warehouse for the necessary period to start or to be returned to activity or to terminate the application of the special program;
  • The procedures related to the analysis of the request for the use of the special program or its extension will be executed effectively within 30 (thirty) days, counting from the registration of the request with the federal government;
  • Support vessels in coastal navigation may be admitted to the special program if they are transporting persons or goods to companies directly or indirectly involved in the research and mining of oil and natural gas deposits;
  • Importation or acquisition in the domestic market of raw materials, intermediate products and packaging materials to be used essentially in the production process of final product destined to the activities defined in REPETRO SPED, with suspension of federal taxes;
  • Goods that are in the process of industrialization under the special program, which presently regulate the construction of oil exploration platforms, may be transferred to a new special program, foreseen in article 6, Provisional Measure No. 795/17.

Control, Compliance and Risk Management

Compliance requires systemic monitoring of processes ensuring adequate traceability, as well as the audit history of the import and export of specific equipment for use in the research and mining activities of oil and natural gas.

REPETRO SPED has made the management of this vitally program important to a participating company that they can demonstrate effective control of assets related to its exploration contracts, deadlines, traceability of assets, associated liability terms and authorization to use REPETRO, in addition to all forms of extinction, admissibility and deadlines set forth in legislation.

The reconstruction of the oil and gas sector

History has shown us that, after a major economic crisis, the Brazilian government will make adjustments to the regulations to provide a more competitive environment.

REPETRO SPED was born with this goal in mind, but with an additional more strict line of control and compliance. Investment in technology has always been a priority in the strategic planning of the customs authorities, and its use has been intensified in auditing processes.

REPETRO SPED is a natural course because this special program is essential in supporting the 45 exploration areas that are slated for creation by 2020. This expansion will be enough to increase, in 17%, the proven reserves of oil in Brazil, growing to approximately 14 billion barrels. The revitalization of the industry could be a critical factor to support the Brazilian economy and helping in the reconstruction of the country.

[1] SPED (http://sped.rfb.gov.br) – Public Digital Bookkeeping System in Brazil identified as an instrument that unifies the activities of reception, validation, storage and authentication of books and documents that integrate the bookkeeping and fiscal accounting of businessmen and legal entities, including immune or exempt, through a single flow, computerized, information.