Petrobras, further to the press release of 08/23/2017, reports that Law no. 13.586 was sanctioned on 12/28/2017 as a result of the approval of Provisional Measure no. 795/2017. The aforementioned Law, together with Decree no. 9,128/2017, ensures the maintenance of the tax rules in force at the 14th bidding round of the concession regime and in the 2nd and 3rd rounds of the production sharing regime, which were carried out by the National Agency of Petroleum, Natural Gas and Biofuels (ANP), respectively in September and October of the current year, as well as guaranteeing a secure legal environment for investments in the country.

The new legislation partially incorporates the amendments proposed by the National Congress and will take effect as of January 1, 2018, as detailed below.

i) Deductibility of the calculation basis of the Corporate Income Tax (IRPJ) and the Social Contribution on Net Profits (CSLL) of investments made in the exploration and production phases of oil and natural gas:

(a) Revokes Decree Law no. 62, dated November 21, 1966, which ensured the immediate deduction for tax purposes on the outcome of investments related to the exploration and production of oil and natural gas; and

(b) Allows investments made in exploration and production to be immediately deductible in the years in which they were incurred into. However, the expenses associated with assets formation for the development of production may be deducted in an accelerated manner, according to the method of units produced. The original text of the Provisional Measure submitted to Congress appreciation limited the accelerated deduction to December 2022, a restriction that was suppressed during its processing and maintained in the conversion into Law.

(ii) Taxation by Withholding Income Tax (IRRF) on remittances for the payment of vessels chartering abroad:

(a) Increases the tax burden on charting remittances from 2018;

(b) Offers an installment program to close part of the litigation associated with such matter, only in respect to IRRF, upon payment of the difference in relation to the defined legal limits, added default interests, with amnesty of default and exofficio fines, subject to the withdrawal of administrative and judicial suits. The portion of litigation related to social contributions (CIDE-Serviços, PIS and COFINS), although its cancellation was foreseen in the text approved by the National Congress, was object of presidential veto, not being achieved by the program.

(iii) Adjustment of the terminology used in the special regime of taxation of profits earned abroad by subsidiaries that carry out vessel chartering, rental of goods or service provision activities related to the exploration and production of oil and natural gas, instituted by Law no. 12,973, of May 13, 2014.

(iv) Creation of REPETRO-Sped. After changes made by the National Congress and accepted by the President of the Republic, the provisions of REPETRO-Sped ensured the elimination of federal tax charges levied on investments related to the exploration and production of oil and natural gas, both for assets under temporary and permanent nature, until 2040. The company awaits approval of the legislation by the National Finance Policy Council (CONFAZ), which will define the state taxation applicable on such investments. Once this step is closed, the signatory States must also incorporate the provisions of CONFAZ in their respective laws, for the full effectiveness of the regime

Petrobras believes that the new taxation model together with the improvement of regulatory legislation was an important milestone for the oil and gas industry, as they allow greater legal security for investments. However, one of the main objectives expressed in the explanatory statements of the MP 795/2017, the reduction of litigation, was not entirely achieved due to the veto to the provision that allowed the total termination of the litigation related to one of the essential activities of the industry: ship chartering.