All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Brazil publishes guidance on PIS/COFINS impacts for debt forgiveness

Sponsored by

Brazil real - large

Brazil's federal tax authorities have published guidance noting that debt forgiveness ought to be regarded as financial revenue and should be taxed at 4.65%.

The federal Brazilian tax authorities (RFB) published guidance on October 4 2018 stating that revenues recognised as a result of debt forgiveness (in this case, a bank loan) should be subject to PIS/COFINS at a combined rate of 4.65% (Solução de Consulta - Cosit 176/2018, dated September 27 2018).

By way of background, Brazil has a variety of different transaction and indirect taxes and contributions, including a Contribution to the Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS). Broadly speaking, these contributions apply on gross revenues as well as on the import of goods and services. The applicable rates depend on the particular transaction as well as the methodology the Brazilian taxpayer applies (the cumulative method does not allow for input credits whereas the non-cumulative method allows for input credits in specific circumstances).

In 2015, Decree 8.426 re-established that financial revenue should be subject to PIS and COFINS at the rates of 0.65% and 4%, respectively, for entities applying the non-cumulative methodology. Subsequently, Decree 8.451/2015 amended the original decree, introducing a number of scenarios where 0% should apply, specifically in relation to hedging and foreign exchange transactions.

In past situations where debt forgiveness was considered, there was a discussion whether the principal debt forgiven (as well as any interest on such debt) should be considered a revenue item subject to PIS/COFINS, and if so, at what rate.

Solução de Consulta - Cosit 176/2018 considers that the forgiveness of debt should be regarded as a revenue item. Citing the accounting rules (CFC No. 1.374/11), the RFB considered that the reduction of a debt originating from its forgiveness creates a requirement to recognise a revenue item.

In order to subsequently determine the implications from a PIS/COFINS perspective, the RFB considered whether the revenue should be considered financial revenue. Drawing parallels with the corporate income tax definition of financial income and associated guidance issued by the RFB, similarities were drawn between the forgiveness of a debt and a discount (or re-negotiation) of an original debt, both of which the RFB considered financial revenue. The RFB clarified that such a conclusion applies to entities that are not dedicated to financial activities.

Once determining that the forgiveness of the debt should be regarded as financial revenue, the RFB confirmed that the entity should apply the combined rate of 4.65%.

While Solução de Consulta does not represent law or legal precedent, it does provide further support and guidance for Brazilian entities in relation to how the RFB are treating such arrangements.

Priscilla Vergueiro

Priscila Vergueiro


Mark Conomy final

Mark Conomy

This article was written by Priscila Vergueiro ( and Mark Conomy ( of PwC Brazil.

more across site & bottom lb ros

More from across our site

The winners of the ITR Americas Tax Awards have been announced for 2022!
US technology company Cisco Systems hopes shareholders will reject a proposal to make its CbCR public, while the UK approves an extradition case connected to the ‘cum-ex’ scandal.
Tax leaders have warned that the latest UK interest rate increases could land a further blow on MNEs, which are already struggling.
Panellists said OTP can improve corporations’ forecasting and data usage, with one describing improvements as 'night and day'.
Digital services companies are increasingly selective about the countries where they register for VAT, basing their choices on revenues and risks of penalties.
The Women in Business Law Awards is excited to present the shortlist for the first Global Awards
Like medicine, tax is an evolving science. Norah Al Khalaf explains how tax policies have changed across the member states of the Gulf Cooperation Council and what tax departments should prepare for next.
The departing OECD director said countries’ sovereignty is crucial to pillar two while speakers questioned current tax policies.
World tax leaders and departing OECD director Pascal Saint-Amans said they would work increasingly hard to implement pillar two, during the IFA Congress.
This week the European Commission is facing opposition over its windfall tax proposal, while Tesla is considering moving production to the US over tax breaks.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree