WorldGuedes says he invests in a tax haven so he doesn't pay...

Guedes says he invests in a tax haven so he doesn’t pay inheritance tax in the US


Paulo Guedes during a hearing at the Chamber this Tuesday, in Brasília.ADRIANO MACHADO (Reuters)

Economy Minister Paulo Guedes said in a public hearing at the Chamber this Tuesday that he kept money in a tax haven so as not to pay inheritance tax in the United States. “For succession reasons, if you want to invest something in the US as an individual and die, 46%, 47% [do dinheiro] it is expropriated by the American Government”, he said, without making clear what investments he has in the US.

The minister argued that he was advised by lawyers to use the offshore to make investments and not have half of their money “appropriated by the US Government” in case of family succession. This would only happen if the minister directly invested in US companies as an individual, since the US has a high tax rate on inheritances. In the case of Brazil, the inheritance tax is one of the lowest in the world. Heirs pay between 3% and 8% on the property transmitted after death, depending on the state. In São Paulo, only 4% is paid on inheritance, a negligible amount when compared to France (60% tax on inheritance), Japan (55%), Germany and Switzerland (50% each), England (50%) and Chile (25%).

The statement that you use offshore to evade tax in another country left some parliamentarians shocked. “You say you put your money in offshore not to pay tax is almost a slap in the face of the Brazilian people, who pay taxes, the small and micro that are surcharged, while we have a paradise for shareholders of offshore and speculators”, stated deputy Fernanda Melchionna (PSOL-RS).

Guedes was summoned by the Committee on Labor, Administration and Public Service (CTASP) by the Committee for Financial Inspection and Control (CFFC) of the Chamber of Deputies to defend himself against a possible conflict of interest for maintaining a offshore in the British Virgin Islands after accepting a position in the Government, as revealed by the journalistic investigation of Pandora Papers, of which EL PAÍS is a part. Documents show that in 2014 the minister had at least eight million dollars (43.3 million reais, at the current exchange rate) invested in a shelf company, as they are known in the financial jargon, companies founded in tax havens, but which can remain idle for years, waiting for someone to give them function. The president of the Central Bank, Roberto Campos Neto, also owns companies in a tax haven.

The Code of Conduct of the High Federal Administration prohibits “investment in goods whose value or price could be affected by a government decision or policy”, which they themselves would have taken. The prohibition refers to those about which “the public authority has privileged information, due to the position or function”. On at least two occasions, deputies point out that Guedes’ decisions may have impacted his own investments. This is the case of the tax reform bill sent to Congress and also of the decision of the National Monetary Council (CMN) to exempt taxpayers from declaring their assets abroad in amounts below one million dollars to the Central Bank.

Guedes stated that the initial text of the tax reform sent by the Ministry of Economy to the Chamber contained the taxation of 27.5% of all profits, income and assets of lawful origin that are abroad. “The proposal that has my signature has the taxation of offshore”, said Guedes. However, the Chamber of Deputies excluded the paragraph, in a decision also negotiated with the minister. “On July 13 you had a meeting with the rapporteur [da reforma tributária] and after the meeting was withdrawn [o artigo que tributava offshore]”, stated deputy Jorge Solla (PT-BA).

Guedes reiterated that it was the “ordeal” of the text by the Chamber and the Senate that ended up removing the taxation of companies in tax havens. “Apparently I’m not the one who has a friend in the financial market, because they overturned the proposal to tax 60,000 Brazilians who earn 300 billion abroad,” said Guedes, stating that the money would be used for the social program Auxílio Brasil, which replaced Bolsa Família. The minister said that he thinks the taxation of the richest is “fair”. And that the measure would expose drug traffickers, arms traffickers, those who have money without origin”, as well as those who “did not register with the revenue and the Central Bank”. “We tried to tax the richest and we didn’t succeed”, he lamented. Taxation on inheritance, however, was not included in the reform agenda.

As for the change in the rule for the declaration of assets abroad made by the CMN, Guedes argued: “The only thing I can say is that any conflict of interest is completely absent. If we’re arguing that I have a offshore with a value well in excess of 100,000, I be one of the deciding votes [no CMN] to go to 1 million doesn’t affect me at all. If I had 300,000 I would be exempt from reporting to the Ethics Committee, to the Central Bank”.

The minister was also criticized for keeping his wife Maria Cristina Bolivar Drummond Guedes and daughter Paula Drummond Guedes as shareholders of the company in a tax haven, without informing the authorities. According to deputies, this would be a clear conflict of interest. In the past, ministers who have passed through the Government, such as Henrique Meirelles, have placed their patrimony in a call blind fund, managed by independent managers, to avoid problems with the Ethics Committee.

Guedes stated that part of his patrimony in Brazil, which could be indirectly influenced by his action as a minister, is in a blind fund. He also argued that he divested himself of deals that would be directly influenced by his action as a minister. “Lawyers me they said that the Bolsonaro government would be a difficult government, with a lot of opposition, so the ideal was to divest”, he says. “I divested at a huge loss, I lost more than the value of this offshore by giving up eight, nine, ten years of work,” said Guedes, emphasizing his “sacrifice” for the country.

The answer also failed to convince opposition lawmakers, who argued that Guedes is gaining a lot from the dollar’s appreciation. “Sacrifice in being a minister? But how much did you make?”, asked deputy Elias Vaz (PSB-GO). According to the deputy, a statement presented by the minister shows that his investment fund managed by Banco Itaú had an appreciation of 42%, or 6.6 million reais, to 22.3 million in just six months of government.

In his defense, Guedes also claimed that he fought an independent Central Bank, which is the institution responsible for setting the interest rate. “If I wanted to manipulate, I would leave BC under my command.” The minister also said that he carried out a survey of the moments when the dollar rose sharply during his tenure. There were 27 occasions in which the dollar rose 2% on the same day, none for the economy,” he said. According to him, factors such as covid-19, the departure of former judge Sergio Moro from the Government and the imprisonment of former president Michel Temer influenced the rise of the dollar. “It was just politics or illness.”

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