3 Brazil

Dr. Fernando Souza de Man

I. Introduction

The Brazilian Tax system is extremely complex, and compliance to the rules demands significant work. As a matter of fact, according to the study Paying Taxes 2017 [1], conducted by the World Bank and PwC, a medium sized company spends 2.038 hours per year to pay taxes in Brazil[2], which is almost twice as many hours needed in Bolivia, second in the rank, and much higher than the Latin American countries average, which is 564 hours. Furthermore, Brazil is ranked at 181 out of 189 economies on the easiness of paying taxes.

Taking this complexity in consideration, as well as the international perspective of this course, this chapter will not discuss in detail all taxes to which a corporation is subject to in Brazil; it will rather focus on the corporate income tax, providing its main characteristics and discussing its application in domestic and international situations. Further, this contribution will deal with the domestic legislation devised to counter tax avoidance schemes and the double tax conventions signed by Brazil, as well as recent amendments influenced by the OECD work on BEPS.

I.1 Corporate Income Tax at Domestic Level

The Brazilian system of income taxation, including the taxation of corporate entities, is structured according to the principles established in the Brazilian Constitution [3], the National Tax Code [4], the Income Tax Regulation, issued in 1999 (“ITR/99”) [5], and subsequent laws (complementary and ordinary), decrees and provisional measures edited by the Government.

On that matter, the Brazilian Constitution stipulates that income taxes shall be levied by the Federal Government and that they should be general (all income earned), universal (all income-earners) and progressive (higher earners should pay more), in accordance with the law[6], while the National Tax Code determines that taxes shall be levied on earnings from capital, labor (or a combination of both) and any increase in wealth [7].To facilitate our study, income will be divided into active and passive income

I.1.1. Active Income

Active income is the income derived from the exercise of an activity, either through employment or, in the case of companies, of business[8].

I.1.1.1. Business Profits

The Taxation of Business Profits is regulated by Book II of the ITR/99, where it is prescribed the taxable event, basis, immunities as well as rules for small and medium enterprises.

I.1.1.1.1. Taxable Event

According to Article 43 of the National Tax Code, mentioned afore, there is no question that the taxable event for the corporate income tax is the earning of income, whether through labor, capital, or a combination of both, or the increase in wealth. Article 218 of the ITR/99 confirms this approach, stating that corporate income tax is due whenever income is earned[9].

I.1.1.1.2. Taxable Basis

The taxable base can be asserted mainly in two manners, by a real profit regime or a presumed profit regime[10]. The real profit regime is obligatory for some taxpayers, e.g. enterprises that earned more than 78 million reais in the previous year or earned income abroad[11], and in this case the taxpayer effectively calculates the profits achieved in the year, considering all income earned in the period, with the additions and exclusions authorized in the Regulation[12]. On that matter, expenses which are necessary for the development of the activity are generally deductible[13], although some restrictions may exist.

On the other hand, enterprises that earned less than 78 million reais in the previous fiscal year and are not obliged by law to adopt the real profit regime can adopt a system of presumptive taxation, the presumed profit regime. In this regime, the taxable basis is determined by the assumption that the enterprise, depending on its activity, earned a profit ranging from 1,6% (sale of fuel and natural gas) to 32% (services in general) of its gross revenue.

As the profit margin is based on a presumption, the taxpayer cannot deduct any expense related to the earning of the income. Furthermore, income not related to the income-earning activity of the taxpayer, e.g. capital gains, interest, is not subject to the presumed profit margin; such income should be added to the result of the presumed profit and subject to the corresponding tax rates. In this regime, after the gross revenue is multiplied by the presumed profit margin, the result still must be subject to the tax rates for corporate income tax to determine the tax due.

I.1.1.1.3. Taxpayers

Concerning the taxpayer, as expressed at ITR/99, the corporate income tax is due by legal persons[14], which are defined as: (i) legal persons domiciled in Brazil[15]; and (ii) branches, agencies and representative offices of legal persons resident abroad[16]. The definition of corporate domicile is provided on ITR/99, which states that the company is domiciled at its headquarters or, in case of a PE or representation of a foreign enterprise, the place where such PE or representation is located[17].

Furthermore, the ITR/99 determines that silent partnerships shall be treated in the same manner as legal persons[18]. Thus, in the Brazilian legislation unincorporated entities are subject to corporate income tax. Also, the regulation prescribes that foreign enterprises deriving income sourced in Brazil shall be taxed therein[19].

I.1.1.1.4. Tax rates

In Brazil, there are two applicable tax rates for the corporate income tax, a 15% general tax[20] and a surtax of 10% on the amount that exceeds 20.000 reais in a month[21].

Furthermore, there is no withholding tax obligation if the business activity developed by the taxpayer amounts to the sale of goods, save in case the payment was made by an entity of the public administration to a private legal entity. However, in case of the provision of services by legal entities to legal entities or the government, the payer of the services legal entity is obliged to withhold part of the tax, with rates varying in accordance with the service provided[22].

I.1.2. Passive Income

Passive income is the income derived from the holding of assets[23], e.g. dividends, interest and royalties.

I.1.2.1. Dividends

Since 1996, Brazil does not tax dividends paid by its resident companies to residents and non-residents[24].

I.1.2.2. Interest
I.1.2.2.1. Taxable Event

Like the case of business profits, the taxable event is the earning of interest income[25].

I.1.2.2.2. Taxable Basis

The taxable base is, at first, the amount of interest earned, which is subject to a withholding tax at the moment of payment. Afterwards, this income shall be added to the income from business activities when calculating the profits earned by the legal entity[26]. Costs linked to the earning of the interest income are deductible, if they comply with the requirements of being usual and necessary for the earning of the income[27].

I.1.2.2.3. Taxpayers

The tax is due by the legal entity that received the interest payment, i.e. the one that lent the money[28].

I.1.2.2.4. Tax rates

Interest income earned by legal entities is subject to a withholding tax that varies from 15% up to 22.5%, depending on the due date of the payment (interest earned on loans for less than 180 days are subject to the 22.5% tax rate while loan with a maturity date longer than 720 days are subject to the 15% tax rate[29].

Furthermore, this amount will be added to profits of the enterprise, and will then be subject to the 15% general tax rate[30] and a surtax of 10% on the amount that exceeds 20.000 reais in a month[31].

I.1.2.3. Royalties
I.1.2.3.1. Taxable Event

The receipt of royalty payments, as it represents and increase on the wealth of the taxpayer, is the taxable event[32].

I.1.2.3.2. Taxable Basis

The taxable base is the value paid as royalty subtracted from the expenses needed for the maintenance and fruition of the asset that entitles the entity to the royalty payments[33]. On that matter, royalties paid to shareholders, managers and their family members are not considered necessary expenses, so they are non-deductible[34]

I.1.2.3.3. Taxpayers

The tax is due by the legal entity that received the royalty payment, i.e. the one that owns the intellectual property[35].

I.1.2.3.4. Tax rates

Royalty income falls under the general rates of taxation, i.e. 15%[36] and a surtax of 10% on the amount that exceeds 20.000 reais in a month[37]. In case of royalty payments made between corporate entities there is no withholding obligation.

I.1.3. Special Features of the Corporate Income Tax System

While this work has focused on the corporate income tax, it should be borne in mind that Brazil also has a social contribution on net profit, whose proceeds are earmarked for the financing of the social security system, which resembles the corporate income tax. As a matter of fact, the corporate income tax and the social contribution on net profit have similar tax bases and taxpayers (legal persons domiciled in Brazil). Regarding its tax rate, this contribution is levied at the general rate of 9%, with specific rates for certain fields of activity, e.g. banks are subject to a 20% rate[38].

Also, in the presumed profit regime the profit margins are set at 12% for commercial activities and 32% for services in general. Given its similarity to the corporate income tax, it is common in Brazil to say that the corporation is subject to a tax of 34% (15% of the corporate income tax, 10% of the surtax, and 9% of the social contribution).

At last, notwithstanding the non-taxation of dividends, there is a system of interest on net equity in which part of the amount distributed to the shareholders, subject to the same requirements as the distribution of dividends, can be deducted from the corporate income tax base while the receipt of this income is taxed at a 15% rate[39]

I.1.3.1. Group Regime

Brazil has no special group regime for corporations when acting strictly in its territory, as tax consolidation is not allowed and companies are always taxed as independent enterprises.

I.1.3.2. Treatment of losses

There is no limitation for the carrying-forward of losses, but they cannot be used to offset more than 30% of the income tax due in a year[40]. Furthermore, there is no carry-back of losses.

I.1.3.3. Tax Holidays

Brazil gives regional incentives for countries to invest is specific regions of the country, such as the north and northeast regions, and in specific fields, such as R&D expenses.

I.2 Corporate Income Tax on International Level

As studied in the previous section, in fully domestic situations Brazil levies corporate income tax on all income (save dividend income) earned by enterprises domiciled in the country, irrespective of whether they are incorporated, and taxation is based on an actual profit or presumed profit regime, with a general tax rate of 15% and a surtax of 10% on the actual or presumed profit earned. In this section we will focus on taxation of income in inbound and outbound situations, i.e. when income is earned by a Brazilian company abroad or when a foreign enterprise earns income in Brazil.

Before proceeding it is important to bear in mind that there is no domestic definition of PE in the Brazilian legislation and, as mentioned afore, for income tax purposes these establishments are treated as resident companies, being also liable for paying the tax.

I.2.1. Inbound transactions

For matters of practicality, this session will be divided in the same topics as the previous.

I.2.1.1. Active Income

For the definition of active income, refer to section I.1.1.

I.2.1.1.1. Business Profits

Business profits of non-resident enterprises are also subject to taxation in Brazil.

I.2.1.1.1.1 Taxable Event

The earning of income in Brazil is the link for taxation of foreign entities in Brazil.

I.2.1.1.1.2. Taxable Basis

The tax base varies depending on whether business is conducted through a permanent establishment or not. If there is a permanent establishment, profits earned by this entity will be treated just like profits of a resident, being subject to the actual profit regime or the presumed profit regime

I.2.1.1.1.3. Taxpayers

The taxpayer will be the non-resident entity itself or, in case there is a permanent establishment in Brazil, the permanent establishment.

I.2.1.1.1.4. Tax rates

The tax rates depend on whether business is conducted through a permanent establishment or not. In case there is a permanent establishment in Brazil, it will be the 15% corporate income tax. Potentially the 10% surtax, as well as 9% on the social contribution on net profits. On the other hand, if the non-resident does not have a permanent establishment in Brazil, the tax will be withheld at source, normally at the general rate of 15% of the gross revenue[41]. In case of the provision of services (except services of a technical nature, which are also subject to a 15% tax rate) or employment income, however, the rate is increased to 25%[42]

I.2.1.2. Passive Income
I.2.1.2.1. Dividends

Dividends paid by Brazilian companies to foreign investors are not subject to taxation, i.e. the treatment is the same given to Brazilian residents.

I.2.1.2.2. Interest

Just like dividend payments made between residents, payments made to non-residents are also subject to taxation.

I.2.1.2.2.1 Taxable Event

The taxable event is the payment of interest to the non-resident.

I.2.1.2.2.2. Taxable Basis

The basis, in the case of the presence of a permanent establishment, is the income earned after the deduction of the costs attached to this interest. If there is no permanent establishment in Brazil, the tax base is the gross interest revenue.

I.2.1.2.2.3. Taxpayers

The non-resident earning the income.

I.2.1.2.2.4. Tax rates

In case a permanent establishment exists, rates are the same as applied domestically. As for payments made directly to the non-resident entity, there will be a withholding tax of 15%[43].

I.2.1.2.3. Royalties

Royalties earned by non-residents is also subject to taxation in Brazil.

I.2.1.2.3.1. Taxable Event

The payment of royalties by a Brazilian resident to a non-resident.

I.2.1.2.3.2. Taxable Basis

If there is a permanent establishment in Brazil, the rules are the same applicable to resident entities. But if there is no permanent establishment, there will be a tax on the gross royalty payment.

I.2.1.2.3.3. Taxpayers

The non-resident royalty recipient.

I.2.1.2.3.4. Tax rates

In case a permanent establishment exists, rates are the same as applied domestically. As for payments made directly to the non-resident entity, there will be a withholding tax of 15%[44].

I.2.1.3. Special Features of the CIT system
I.2.1.3.1. Existence of Group Regime

Just like domestically, there is no group regime involving non-residents.

I.2.1.3.2. Treatment of Losses

If losses are made through a permanent establishment, they are subject to the same rules as domestic enterprises. Otherwise, since taxation occurs on gross income, there is no right to the consideration of losses.

I.2.1.3.3. Tax Holidays

There are special provisions for investments in government bonds, but no general tax holidays regarding specifically non-resident enterprises.

I.2.1.3.4. Relations with Tax Havens or Low Tax Regimes

Although, as a rule, income paid to foreign entities is subject to a 15% final withholding tax, the Brazilian law prescribes that whenever a payment is made to a resident of a low tax jurisdiction, the withholding tax shall be charged at the rate of 25% [45]. For that matter, low tax jurisdiction is defined as a jurisdiction which does not charge income tax or charges at a rate lower than 20% [46] or which does not provide information on the ownership of shares of a legal entity and on the beneficial owner of income attributed to non-residents[47].

More recently the concept of fiscal privileged regime was also introduced in the Brazilian legal system. A fiscal privileged exists whenever any of the following characteristics is present: (i) income, domestic or international, is not taxed or taxed at a rate lower than 20%[48]; (ii) a tax benefit is granted to no)n-residents in the absence of substantial economic activity in the country or conditioned to the absence of such substantial activity; and (iii) the country does not provide information on the ownership of shares of a legal entity and on the beneficial owner of income attributed to non-residents[49].

Diverging from the situation concerning low-tax jurisdictions, in the case of payments made to entities benefitting from fiscal privileged regime there is no increase on the Brazilian WHT tax, i.e. income will be taxed at the rate of 15%, as the law prescribing the increase on the rate makes expressly reference only to situations involving low tax jurisdictions[50].

This is the sole major difference in treatment between payments made to entities resident in low tax jurisdictions and benefitting from a fiscal privileged regime, since in both cases the Brazilian: (i) transfer pricing rules will be applicable, even if the parties are not related[51]; (ii) thin cap rules will be more stringent than in case of payments made to entities not located on low-tax jurisdictions or benefitting from fiscal privileged regimes [52]; and (iii) payments made to the foreign entity will only be deducted from the corporate income tax base if the following requirements are cumulatively met: (a) the beneficial owner of the income is disclosed to the tax authorities; (b) it is proved that this foreign entity carries out the activity for which it is being paid; and (c) the Brazilian entity provides documental evidence confirming the actual payment and the receipt of goods of services[53].

I.2.2. Outbound Transactions

Brazilian residents are subject to the corporate income tax on a worldwide basis, i.e. income earned abroad is also subject to income tax in Brazil[54]. Consequently, Brazil will provide a credit for taxes paid abroad to avoid double taxation.

I.2.2.1. Active Income

For the definition of active income, see section I.1.1.

I.2.2.1.1. Business Profits

Profits earned abroad are subject to the general rules of the corporate income tax. This rule applies even if the income is earned through a subsidiary company and it is not distributed, as it will be seen in the section regarding the Brazilian CFC legislation. Furthermore, the resident company must also pay the social contribution on net profits, mentioned afore[55]. Income earned from the provision of services abroad is also taxed in Brazil under the general rules of the corporate income tax.

I.2.2.1.1.1. Taxable Event

The earning of income abroad

I.2.2.1.1.2. Taxable Basis

The profits earned by the business activity

I.2.2.1.1.3. Taxpayers

Brazilian resident entities

I.2.2.1.1.4. Tax rates

The same applicable on domestic situations, including the rates of 15%, the surtax of 10% and the 9% social contribution.

I.2.2.2. Passive Income
I.2.2.2.1. Dividends

Different from the domestic situation, dividends received by a Brazilian resident from abroad are subject to taxation, as the law prescribing the dividend exemption set as a requirement that the distributing company must be subject to the actual profit or presumed profit regime[56]. Since only domiciled enterprises are taxed in accordance with these regimes, dividends distributed by non-resident enterprises to a Brazilian enterprise should be taxed.

I.2.2.2.1.1. Taxable Event

The receipt of dividends from abroad

I.2.2.2.1.2. Taxable Basis

The amount received

I.2.2.2.1.3. Taxpayers

The Brazilian resident entity

I.2.2.2.1.4. Tax rates

Since the dividends will be added to the income of the resident entity, they will be subject to the domestic rates for income taxation, 15% plus eventual surtax of 10% and the social contribution of 9%.

I.2.2.2.2. Interest

Interest sourced abroad and paid to a Brazilian entity is also taxed under the general rules of the corporate income tax.

I.2.2.2.2.1. Taxable Event

The receipt of interest by the resident entity.

I.2.2.2.2.2 Taxable Basis

The interest received.

I.2.2.2.2.3. Taxpayers

The Brazilian entity recipient of the interest.

I.2.2.2.2.4. Tax rates

General rule of corporate taxation, 15% rate and, eventually, the 10% surtax and the social contribution on net profit.

I.2.2.2.3. Royalties

Similar to interest income, royalties sourced abroad are also subject to taxation in Brazil if paid to a Brazilian entity.

I.2.2.2.3.1. Taxable Event

The receipt of royalties by the resident entity.

I.2.2.2.3.2. Taxable Basis

The royalty income received.

I.2.2.2.3.3. Taxpayers

The Brazilian recipient of income.

I.2.2.2.3.4. Tax rates

General rates of income taxation, as dividends and interest.

I.2.2.3. Special Features of the CIT system
I.2.2.3.1. Existence of Group Regime

There is no group regime in Brazil with companies abroad

I.2.2.3.2. Treatment of Losses

Losses cannot be brought to Brazil but can be carried forward for future use.

I.2.2.3.3. Tax Holidays

There are no special rules regarding tax holidays for income earned by resident entities abroad.

I.2.2.3.4. Relations with Tax Havens or Low Tax Regimes

Income sourced in tax havens is not subject to a higher tax rate per se, but it may be subject to more stringent rules, specially if income is derived from dealings with related parties.

I.2.2.3.5. Relief Methods

As a rule, and in line with the system of worldwide taxation, Brazil provides a credit for taxes paid abroad.

I.3. Anti-avoidance legislation

To counteract abusive transactions, the Brazilian tax system contains a general anti-avoidance rule and specific anti-avoidance rules such as, thin cap rules and CFC rules.

These rules are normally applied in dealings between related parties, which in Brazil engulfs not only relations between parent and subsidiary companies, but also with branches, affiliated companies and between shareholders and members of the board of directors[57]. However, as mentioned afore, they are also applied in dealings with entities located in low tax jurisdictions or benefiting from a privileged fiscal regime.

I.3.1. General Anti-avoidance rule

The Brazilian general anti-avoidance rule prescribes that the tax authorities can disregard transactions entered with the goal of concealing the occurrence of a taxable event or tampering with the tax liability, with due regard to the procedures established by an ordinary law[58]. Even though this provision is part of the National Tax Code since 2001, such ordinary law has never been enacted. In the absence of the parameters to determine which situations can be disregarded, this provision should not serve as a general anti-avoidance rule. Nonetheless, in practice the tax authorities have been constantly disregarding legal transactions which they consider lacking business purpose.

I.3.2. Thin Cap rules

The Brazilian thin cap rules have been enacted in 2010 and prescribe that interest paid by a Brazilian entity to a related party not resident in a low tax regime or subject to a privileged tax regime will not be deductible if: (i) in case of debt contracted with a related party that holds an equity participation in the Brazilian company, the debt/equity ratio is higher than 2:1; (ii) in case of debt contracted with a related party that has no equity participation in the Brazilian entity, the debt/net worth ratio is higher than 2:1. In any case the total debt with related parties cannot surpass the 2:1 ratio as regards the total equity stake of related parties on the Brazilian entity[59].

In case the foreign entity is resident in a low-tax jurisdiction or benefits from a privileged fiscal regime, irrespective of whether it is related to the Brazilian entity, interest will only be deductible up to the 0.3:1 debt/equity ratio. [60]

I.3.3. CFC legislation

Brazil has a unique CFC legislation, since the profits of all controlled companies, irrespective of the place in which the controlled company is resident and the characterization of the income as active or passive, will be taxed in Brazil in the year they were earned, regardless of actual distribution. Hence, the rules are not actually focused on abusive conducts by the taxpayers, but rather on the fact that a Brazilian resident earned income abroad.

This system is also applied to affiliated companies as long as one of the following conditions apply: (i) the foreign company is located in a low tax jurisdiction or benefits from a privileged tax regime; or (ii) the foreign entity is subject to a tax rate lower than 20% or is controlled, directly or indirectly, by a company subject to such rate [61]. In case the affiliated company does not fulfill these conditions, the Brazilian entity will only be taxed when the income is effectively distributed[62].

Apart from the rules mentioned afore, this CFC regime also introduced two novelties in the Brazilian tax system. Provided that the foreign entity is not subject to a taxation lower than 20%, is not located in a low tax jurisdiction or benefits from a preferential tax regime, and at least 80% of its income is considered “active income”, i.e. income from the development of economic activities, excluded, inter alia, royalties, interest, dividends, the tax due may be paid in 8 yearly installments, in which the first installment would have to correspond to at least 12.5% of the tax due[63].

Furthermore, if these requirements are fulfilled and the foreign entity is located in a country which has a double tax convention/agreement with Brazil regarding the exchange of information, the accounts of the foreign subsidiaries can be, until 2022, consolidated in the Brazilian parent company[64].

I.4. Tax Treaty Law

Brazil has been signing conventions for the avoidance of double taxation since the 1960s. Nonetheless, the country does not have a broad tax treaty network, and in quite a peculiar manner it does not have tax treaties with some of its main trading partners, e.g. United States and Germany.

Additionally, even though the tax treaties include in their scope solely the income tax, Brazil has recently made clear that the social contribution on net profit is also under the scope of the treaties[65].

I.4.1. Adherence to UN or OECD Model Convention

The Brazilian tax treaties are modelled based on the structure present in the OECD model tax convention, but they contain more source taxing rights than the former. Hence, it can be said that the treaties are more in line with the UN Model Convention.

I.4.2. Special Features Commonly present on Tax Treaties

In Brazilian tax treaties royalties are taxed at source and the “other income” article also allows for taxation at source. On that matter, in most Brazilian DTCs the definition of royalties includes the provision of technical services. Additionally, despite the deletion of Article 14 by the OECD model convention, Brazil continues to include this provision on its tax treaties.

Moreover, a considerable number of the the Brazilian DTCs contain provisions on tax sparing/matching credit, guaranteeing that eventual tax benefits given to taxpayers are not annulled by a consequent increase of taxation in the residence state of the income earner. Further, clauses regarding limitations on benefits are not widespread, but they are constantly being adopted in the most recent treaties.

I.4.3. Treaties currently in force

At the moment there are 33 tax treaties in force, which are, in the chronological order in which they were signed: (i) Brazil-Japan (1967); (ii) Brazil-France (1971); (iii) Brazil-Belgium (1972); (iv) Brazil-Denmark (1974); (v) Brazil-Spain (1974); (vi) Brazil-Sweden (1975); (vii) Brazil-Austria (1975); (viii) Brazil-Italy (1978); (ix) Brazil-Luxembourg (1978); (x) Brazil-Argentina (1980); (xi) Brazil-Norway (1980); (xii) Brazil-Ecuador (1983); (xiii) Brazil-Philippines (1983); (xiv) Brazil-Canada (1984); (xv) Brazil-Hungary (1986); (xvi) Brazil-Czech Republic (1986); (xvii) Brazil-Slovakia (1986); (xviii) Brazil-India (1988); (xix) Brazil- South Korea (1989); (xx) Brazil-The Netherlands (1990); (xxi) Brazil-China (1991); (xxii) Brazil-Finland (1996); (xxiii) Brazil-Portugal (2000); (xxiv) Brazil-Chile (2001); (xxv) Brazil-Ukraine (2002); (xxvi) Brazil-Israel (2002); (xxvii) Brazil-Mexico (2003); (xxviii) Brazil-South Africa (2003); (xxix) Brazil-Venezuela (2005); (xxx) Brazil-Peru (2006); (xxxi) Brazil-Trinidad & Tobago (2008); and (xxxii) Brazil-Turkey.

I.5. Community Law

Despite the size of its economy, Brazil is still an outlier regarding participation in economic unions.

I.5.1. Participation in a Community/Union

Brazil is a founding member of the MERCOSUR and is a member of the Community of Portuguese Speaking Countries. These groups do not have specific legislation or jurisprudence affecting the corporate income tax levied in Brazil.

I.6. Influence of BEPS Action Plan in the country

Brazil is part of the BEPS Inclusive framework, so amendments are being discussed in its legislation based on the BEPS Action Plan.

I.6.1. Adoption of rules in line with BEPS Reports

Since the release of the BEPS reports, Brazil has tackled some of the issues raised on BEPS actions 5[66], 13[67] and 14[68]. It also tried to implement rules in line with BEPS action 12, but this was not approved by the Congress.

I.6.2. Participation in multilateral instrument

Brazil was a member of the ad hoc group that drafted the multilateral instrument, but it opted not to sign the MLI. Instead, Brazil is aiming to amend its tax treaties through individual negotiation with the countries.

I.7. Jurisprudence

Brazil does not have vast jurisprudence regarding international aspects of its legislation, but there has been considerable discussion on the validity of its CFC rules, which, as mentioned afore, are broad.

The rule was questioned in 2002, but it was only in 2013 that the Supreme Court ruled that the Brazilian CFC regime could be applied in case of controlled companies located in tax havens or fiscal privileged regimes, but not in case of affiliated companies located elsewhere[69]. In a subsequent case the court clarified that the regime could also be applied for controlled companies not located in tax havens or fiscal privileged regimes[70].

Furthermore, the Superior Court of Justice (highest court in non-constitutional matters) has subsequently ruled that if Brazil has signed a tax treaty with the state in which the controlled foreign company is located, profits of this companies can only be taxed therein, irrespective of the Brazilian CFC rules.


  1. Paying Taxes 2017, World Bank Group & PwC, available at https://www.pwc.com/gx/en/paying-taxes/pdf/pwc-paying-taxes-2017.pdf, p. 124, last accessed on 14 July 2017. This is a considerable reduction from the previous year, in which companies needed 2600 hours to comply with their obligations, but Brazil is still the outright leader in this regard.
  2. Paying Taxes 2017, (note 165), p. 124.
  3. Brazil, Constitution of the Federal Republic of Brazil, 1998, available at http://www.planalto.gov.br/ccivil_03/constituicao/ConstituicaoCompilado.htm, last accessed on 15 July 2017.
  4. Brazil, National Tax Code (Law n. 5172/66), available at http://www.planalto.gov.br/ccivil_03/leis/L5172Compilado.htm, last accessed on 15 July 2017.
  5. Brazil, Income Tax Regulation (Decree n. 3000/99), available at http://www.planalto.gov.br/ccivil_03/decreto/d3000.htm, last accessed on 20 July 2017.
  6. Brazil, Constitution of the Federal Republic of Brazil, 1998,(note 167), art. 153.
  7. Brazil, National Tax Code (note 168), Article 43.
  8. IBFD Tax Glossary, available at www.ibfd.org, last accessed on 17 July 2017.
  9. Brazil, Income Tax Regulation (note 169), art. 218.
  10. In specific cases, the tax authorities can arbitrage the profits which are subject to tax, but as these situations are limited they will not be discussed in this work. Also, Brazil prescribes a special, simpler regime for small and medium enterprises.
  11. Brazil, Ordinary Law n. 9.718/98, available at http://www.planalto.gov.br/ccivil_03/LEIS/L9718.htm#art14, article 14, last accessed on 18 July 2017.
  12. Brazil, Income Tax Regulation (note 169), Art. 247.
  13. Brazil, Income Tax Regulation (note 169), Art. 299.
  14. Brazil, Income Tax Regulation (note 169), Article 146, I.
  15. Brazil, Income Tax Regulation (note 169), Article 147, I.
  16. Brazil, Income Tax Regulation (note 169), Article 147, II.
  17. Brazil, Income Tax Regulation (note 169), Article 212.
  18. Brazil, Income Tax Regulation (note 169), Article 148.
  19. Brazil, Income Tax Regulation (note 169), Article 685.
  20. Brazil, Income Tax Regulation (note 169), 541.
  21. Brazil, Income Tax Regulation (note 169), 542.
  22. Brazil, Income Tax Regulation (note 169), Arts. 647-653.
  23. IBFD Tax Glossary, available at www.ibfd.org, last accessed on 17 July 2017.
  24. Brazil, Ordinary Law n. 9,249/95, article 10, available at http://www.planalto.gov.br/ccivil_03/LEIS/L9249.htm#art10, last accessed on 17 July 2017.
  25. Brazil, Income Tax Regulation (note 169), art. 373.
  26. Brazil, Income Tax Regulation (note 169), art. 373.
  27. Brazil, Income Tax Regulation (note 169), Art. 299.
  28. Brazil, Income Tax Regulation (note 169), art. 373.
  29. Brazil, Ordinary Law n. 11.033/04, Art. 1, available at www.planalto.gov.br, last accessed on 21 July 2017. Loans with maturity dates from 181 up to 360 days are subject to a 20% rate while loans from 361 up to 720 days are subject to a 17.5% tax rate.
  30. Brazil, National Tax Code (note 168), 541.
  31. Brazil, Income Tax Regulation (note 169), 542.
  32. Brazil, Income Tax Regulation (note 169), art. 373.
  33. Brazil, Income Tax Regulation (note 169), art. 352.
  34. Brazil, Income Tax Regulation (note 169), Art. 353, I.
  35. Brazil, Income Tax Regulation (note 169), art. 373.
  36. Brazil, Income Tax Regulation (note 169), 541.
  37. Brazil, Income Tax Regulation (note 169), 542.
  38. Brazil, Ordinary Law n. 7.689/89, available at www.planalto.gov.br, last accessed on 21 June 2016.
  39. Brazil, Income Tax Regulation (note 169), Art. 347.
  40. Brazil, Income Tax Regulation (note 169), Art. 250.
  41. Brazil, Income Tax Regulation (note 169), Art. 685.
  42. Brazil, Income Tax Regulation (note 169), Art. 685, II.
  43. Brazil, Income Tax Regulation, (note 169), article 702
  44. Brazil, Income Tax Regulation, (note 169), article 702
  45. Brazil, Ordinary Law n. 9.779/99, available at www.planalto.gov.br, last accessed on 22 June 2016, Art. 8.
  46. Brazil, Ordinary Law 9.430/96, available at www.planalto.gov.br, last accessed on 22 June 2016, Art. 24. This percentage has been reduced to 17% in case of countries which signed an agreement with Brazil containing a clause on exchange of information or are committed to standards set by international organizations as the Global Forum on Tax Transparency and Exchange of Information
  47. Brazil, (note 210), Art. 24, paragraph 4.
  48. This amount has been reduced to 17%. See note 210.
  49. Brazil, (note 210), Art. 24-A.
  50. Brazil, (note 209), Art. 8.
  51. Brazil, (note 210), Arts. 24 and 24-A.
  52. Brazil, Ordinary Law n. 12.249/10, available at www.planalto.gov.br, last accessed on 22 June 2017, Art. 25.
  53. Brazil, (note 216), Art. 26.
  54. Brazil, Ordinary Law n. 9.249/95, Art. 25, available at www.planalto.gov.br, last accessed on 21 June 2017.
  55. See section 2.4.
  56. Brazil, (note¡Error! Marcador no definido.), Art. 10.
  57. Brazil, (note 210), Art. 23.
  58. Brazil, (note 171), Art. 116, sole paragraph.
  59. Brazil, (note 216), Art. 24.
  60. Brazil, (note 216), Art. 25.
  61. Brazil, Ordinary Law n. 12.973, available at www.planalto.gov.br, last accessed on 22 June 2017,
    Article 82.
  62. Brazil, (note 225), Article 81.
  63. Brazil, (note 225), Articles. 90-91.
  64. Brazil, (note 225), Article 78.
  65. Brazil, Ordinary Law n. 13.202/15, available at www.planalto.gov.br, last accessed on 23 June 2017.
  66. Instrução Normativa n. 1681/2016, available at www.receita.fazenda.gov.br, last accessed on 23 June 2017.
  67. Instrução Normativa n. 1681/2016, available at www.receita.fazenda.gov.br, last accessed on 23 June 2017.
  68. Instrução Normativa n. 1689/2017, available at www.receita.fazenda.gov.br, last accessed on 23 June 2017.
  69. ADI 2.588/DF, available at www.stf.jus.br, last accessed on 30 July 2017.
  70. RE 541.090/SC, available at www.stf.jus.br, last accessed on 30 July 2017.


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