ANNOUNCEMENT 17 May 2013

On May 17, 2013, the government of Brazil renewed the INOVAR AUTO program. This program allows from 30-32% reductions in capital tax payments of goods belonging to the automobile supply chain to Brazilian car manufacturers. Such tax reductions are contingent on the automobile companies following certain conditions, such as localisation requirements.

NUMBER OF INTERVENTIONS

1

  • 1 harmful
  • 0 neutral
  • 0 liberalising

SOURCE

Chief of Staff of Brazil, Casa Civil Brasileira,
http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2015/Decreto/D8544.htm

Inception date: 17 May 2013 | Removal date: 17 May 2017
Still in force

Localisation incentive

On May 17, 2013, The Government of Brazil renewed, by Decree 8.015/13, the INOVAR AUTO program.

Created by Decree 7,819/12, this program grants a 30% tax exemption on the Industrial Production Tax (IPI, for its acronym in Portuguese) to producers, importers, and investors of automobile products that carry out a certain number of production stages in Brazil and invest in 2 out of the 3 following things within Brazil:

  1. Investment in R&D 
  2. Investment in engineering, industrial technology and supplier capacitation 
  3. Participation in the Vehicle Labeling Scheme.

The amount of production stages that must be done in Brazil varies by year; ranging from a minimum of 6 stages 2013 to 8 stages from 2016 and onwards until the end of this program. Automakers can get a 1-2% extra discount in the IPI by meeting more stringent corporate average vehicle efficiency targets. For heavy trucks the requirement is a minimum of 9 out of 14 and 7 out of 11 in the case of chassis with motor.

The number of stages for the program's accession will gradually cover the 12 stages. The R&D tax exemptions are granted on the purchase of inputs that qualify as strategic. The tax is applied on the sales price, but includes tariffs and other charges in the case of imports.

Production stages include: stamping, welding, anticorrosion treatment and painting, plastic injection, motor manufacturing, gearbox and transmission manufacturing, steering and suspension systems assembly, electrical systems assembly, axle and brake systems assembly, mono-block manufacturing or chassis assembly, final assembly, final review and testing, and own laboratory infrastructure for product development and testing.

Decree 8.015/13 will remain in force until 2017.

The GTA includes state guarantees and other financial incentives that are likely to affect the restructuring and performance of firms facing international competition, whether from imports, in export markets, and from foreign subsidiaries