Brazil: Withholding tax obligation on the substitution of shares; New rules on documentation for Brazilian non-resident capital gains taxation

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazil: Withholding tax obligation on the substitution of shares; New rules on documentation for Brazilian non-resident capital gains taxation

giacobbo.jpg
gottberg.jpg

Fernando Giacobbo

Ruben Gottberg

Withholding tax obligation on the substitution of shares

Brazilian Federal Revenue (RFB, by its Portuguese acronym) issued Normative Instruction (NI) 1.664, establishing the responsible party for withholding income taxes on non-resident capital gains arising from the substitution of shares (incorporação de ações).

Under Brazilian legislation, a substitution of shares is a transaction where the whole share capital of a Brazilian entity is transferred into the equity of another Brazilian entity. As a result of this, the latter becomes the shareholder of the former (new shareholder).

According to NI 1.664, when it comes to the substitution of shares, the new shareholder is responsible for withholding income taxes on capital gains realised by non-residents upon the alienation of the transferring entity's shares.

Throughout the years, there has been a debate about whether the alienation of a transferring entity's shares is actually made by the shareholders. In some cases, administrative decisions have confirmed that the alienation has been made by the shareholders, whereas, in other instances, the decisions concluded that the alienation has been made by the transferring entity itself. NI 1.664, confirms ruling 224, issued by the tax authorities (Solução de Consulta COSIT 224), where the alienation is regarded as made by the shareholders.

Although NI 1.664 does not hold a legal status, it is important to note that tax inspectors are bound by this instrument when performing audits.

Multinationals are encouraged to analyse how these changes may affect their intended reorganisations.

New rules on documentation for Brazilian non-resident capital gains taxation

The RFB recently issued NI 1.662, modifying the options available to support the cost basis for calculating non-resident capital gains taxation.

Before NI 1.622 was issued, NI 1.455 provided two options to determine the cost basis for calculating non-resident capital gains taxation in situations where there was no suitable and proper documentation:

1) Based on the amount of foreign capital registered with the Brazilian Central Bank (BACEN); or

2) The cost basis equal to zero.

As of October 3 2016, NI 1.662 eliminates the option to determine the cost basis based on the amount of foreign capital registered with the BACEN where there is no suitable and proper documentation. This change has given rise to concerns as to whether the BACEN's electronic module of foreign direct investment, together with additional documentation, may be regarded as suitable and proper documentation when it comes to support the cost basis for calculating non-resident capital gains taxation.

Multinationals are encouraged to analyse how to address this change.

Fernando Giacobbo (fernando.giacobbo@br.pwc.com) and Ruben Gottberg (ruben.gottberg@br.pwc.com)

PwC

Website: www.pwc.com.br

more across site & shared bottom lb ros

More from across our site

The Australian Taxation Office believes the Swedish furniture company has used TP to evade paying tax it owes
Supermarket chain Morrisons is facing a £17 million ($23 million) tax bill; in other news, Donald Trump has cut proposed tariffs
The controversial deal will allow US-parented groups to be carved out from key aspects of pillar two
Awards
ITR invites tax firms, in-house teams, and tax professionals to make submissions for the 2027 World Tax rankings and the 2026 ITR Tax Awards globally
Pillar two was ‘weakened’ when it altered from a multinational convention agreement to simply national domestic law, Federico Bertocchi also argued
Imposing the tax on virtual assets is a measure that appears to have no legal, economic or statistical basis, one expert told ITR
The EU has seemingly capitulated to the US’s ‘side-by-side’ demands. This may be a win for the US, but the uncertainty has only just begun for pillar two
The £7.4m buyout marks MHA’s latest acquisition since listing on the London Stock Exchange earlier this year
ITR’s most prolific stories of the year charted public pillar two spats, the continued fallout from the PwC Australia tax leaks scandal, and a headline tax fraud trial
The climbdowns pave the way for a side-by-side deal to be concluded this week, as per the US Treasury secretary’s expectation; in other news, Taft added a 10-partner tax team
Gift this article