It's not a new thing for Brazil to install measures discouraging the use of companies established in so-called "tax havens". These jurisdictions offer little to no taxes charged, among other amenities. The same movement is being verified around the world, each country trying to guarantee its share of the taxes.

According to Brazilian law, tax havens are defined as countries or jurisdictions with privileged taxing, i.e., those in which income is not taxable or the maximum income tax is less than 20%. The definition also includes countries or jurisdictions whose legislation establishes confidentiality for corporate ownership structures.

As of 2009, however, the concept of tax havens has been expanded by Law 11,727/2008, which increased the number of countries or jurisdictions that fit the description. The new law added the confidentiality of the effective beneficiary of income obtained in Brazil among the criteria to determine whether a jurisdiction is a tax haven and created the concept of a "privileged tax regime". It applies to companies that are located on highly taxed territories, but benefit from customized tax regimes that reduce the tax load to levels comparable to those of tax havens. For the moment, control over privileged tax regimes applies only to transfer prices and not to transactions in the financial and capital markets.

It is worth noting that the first tax haven law in Brazil referred only to the rules for transfer pricing, forcing Brazilian companies that traded with buyers or sellers in tax havens to show the reasonableness of the prices practiced. In the following years, however, tax haven-based companies began to also be taxed more heavily as regards earnings obtained from Brazilian sources. The tax withheld at the source rose from 15% to 25%. They were also denied the right to the tax benefit of exempting capital gains accrued from stock market operations. This advantage is available only to investors that do not reside in tax havens and are registered at the Central Bank and the Brazilian Securities Commission as per Resolution 2,689 ("2,689 investors").

Starting at that time, several other benefits were created for 2,689 investors. Among them was exemption from income tax on earnings accrued from government bonds and, especially, on those accrued from private equity funds (FIPs). The tax-exemption for earnings accrued from this type of fund is also contingent on the investor not holding more than 40% of the FIP's shares or economic benefit.

International investors are increasingly attempting to structure their investments in jurisdictions that are not characterized as tax havens, such as Holland, Spain, the United States and England. This can bring them the benefits of the incentives granted to them as 2,689 investors. In particular, for investing directly or through FIPs in Brazilian company shares.

Therefore, FIP investments have been drawing the interest of foreigners that seek long-term investments and reducing the number of those that invest through tax havens. This has been occurring not only by tax-exempting the earnings distributions of 2,689 investors, but also by enabling them to enjoy the benefit of income tax exemption on their investment portfolios. This condition allows the earnings and income accrued by FIPs — which are transferable to the shareholders — to avoid any kind of taxation.