The Additional Freight for the Renewing of the Merchant Marine (“AFRMM” – Adicional de Frete para a Renovação da Marinha Mercante) is a taxation established by Decree-Law nº 2,404. The taxation rules were set out by Law nº 10,893/2004.
Its legal nature is of a contribution for intervention in the economic domain (“CIDE” – Contribuição de Intervenção no Domínio Econômico). According to the Brazilian Supreme Court (“STF” – Supremo Tribunal Federal), this taxation is a parafiscal or special contribution, which differs from a tax and a usual charge.
The AFRMM is an additional charge over the freight charged for the transport of any type of cargo by Brazilian and international shipping companies operating in Brazil. The AFRMM is intended to finance, through the Merchant Marine Fund (“FMM” – Fundo da Marinha Mercante), the Federal Government support to the development of the Brazilian merchant marine and of the shipbuilding and ship repair industry.
With the changes introduced by the Laws nº 12,599/2012 and nº 12,788/2013, the Secretariat of the Federal revenue of Brazil (“RFB” – Receita Federal do Brasil) became the responsible for the administration of activities related to the collection, inspection, refund and reimbursement of AFRMM. On May 30, 2014, it was issued the Decree nº 8,257/2014, regulating the legal provisions relating to the exercise of jurisdiction by RFB. Therefore, the RFB is the responsible for analyzing and performing restitution and compensation relating to claims occurring on or after 05/30/2014. Requests made before this date must be filed with the FMM.
The AFRMM’s tax event is the effective beginning of the vessel unloading operation in a Brazilian port and it occurs over long haul shipping, cabotage or river and lake navigation.
The AFRMM is calculated based in the aquatic transportation compensation, and the following rates apply:
- 25% for long haul shipping (between Brazilian ports and foreign ports – maritime, river or lake);
- 10% for cabotage (between Brazilian ports);
- 40% for inland (river or lake) shipping (between Brazilian ports, when carrying liquid bulk in the North and Northeast regions
The Log-In’s AFRMM generation is 10% of its revenue from cabotage.
All Brazilian Shipping Companies may apply for reimbursement of AFRMM, as long as they prove the waterway transportation, whose origin or final destination is in any port located in the North or Northeast regions of the country, and follow the procedures Ordinance nº 72 of the FMM.
A Company that wants to qualify for reimbursement of AFRMM amounts must register itself in the Merchant Marine Fund Department, and fulfill all the requirements and procedures recorded by the Transport Minister’s Act.
According to criteria laid down by law, part of the AFRMM’s amounts is handed to the Brazilian Shipping Companies by depositing in escrow accounts. These values can, among other purposes, to be used in the acquisition, repair or modernization of vessels, thus supporting the development of the merchant marine and of the Brazilian naval construction and repair industry.
The AFRMM’s amount received for the Companies will be directly deposited in their escrow account, which will be operated through the FMM financial agent, in cases as following:
- Acquisition of new vessels for their own use, built in Brazilian shipyards;
- Jumborization, conversion, modernization, repair or docking of their own vessels, including purchase and installation of necessary equipment, when performed by a Brazilian shipyard;
- Payment of funding installment (principal and interest) granted by FMM funds;
- Payment of funding installments (principal and interest) granted by financial agent, with funds from other sources;
- Payment of funding installments (principal and interest) granted by FINAME (Special Agency for Industrial Financing) and PAI (Integrated Amazon Program)
- For use by affiliate, subsidiary or parent company.
The AFRMM Merchant Marine Renewal Tax benefit that is applicable to shipping companies is described in Note 4 of the Financial Statements. As it does not meet the requirements for recognition as subsidized revenue in the income statement, a counterpart to the benefit registered as an asset is recorded as a specific liability to the Company.
The AFRMM benefit is recorded as a current asset and liability when released to the account linked to the funds to be received from the Merchant Marine Fund (FMM), as well as the amounts to be received from the FMM related to financing payments made with the Company’s own funds. The AFRMM amounts recorded as liabilities are recognized in the income statement when the repayment of financing occurs, as the obligations under the specific legislation are fulfilled.
Note nº 4 of the Financial Statements: LEGISLATION APPLICABLE TO SHIPPING COMPANIES
The AFRMM is a benefit available to all Brazilian shipping companies that own or operate chartered vessels, and it is regulated by Law 10,893/2004 and other specific legislation applicable to the sector.
The Company receives the full amount of the additional 10% tax on the value of its clients´ cabotage freight via the Merchant Marine Fund for each cargo transport that it carries out. These funds are restricted and can be used exclusively in the construction, dockage, repairs, vessel maintenance and the repayment of financing granted for the purchase of vessels. The AFRMM installments are registered in specific asset accounts matched against liabilities, over the long term, as long as the requirements are not met for recording subsidized revenue in the income statement.
The AFRMM amounts registered as liabilities are recorded in the results as the following cumulatively occur: (i) the provision of a shipping service (cabotage, fluvial or lacustrine) performed with an own or chartered vessel registered in Brazil and (ii) the funds are applied by the Company in accordance with the conditions described in the previous paragraph and registered by the Merchant Marine Fund. These amounts are applied against the payment amounts on financing obtained from the FMM, and, when applicable, to dockage costs and expenses, corresponding to the generation of the incentive.
The table below shows the AFRMM funds released to Log-In’s escrow account through the responsible bank:
(*) Updated values until September 30, 2017
Click here for AFRMM funds released to Log-In (excel file).