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Brazil: New regulations for Brazilian CFC rules



Philippe Jeffrey

Mark Conomy

On December 8 2014, the Brazilian Federal Revenue Authorities (RFB) published Normative Instruction 1,520/2014 (NI 1,520/2014), regulating the controlled foreign corporation (CFC) rules introduced by Law No. 12,973/2014.

Sub-account recognition and registration

Pursuant to the new Brazilian CFC rules, Brazilian parent companies are required to maintain sub-accounts in which changes in the value of their foreign investments, corresponding to profits or losses of directly and/or indirectly controlled subsidiaries should be recognised in proportion to their participation. NI 1,520/2014 confirms that the variation must be booked in sub-accounts for each directly or indirectly controlled company. It also confirms that the results of the CFC should not contain income earned by another entity over which the Brazilian entity continues to have direct or indirect control. Further, NI 1,520/2014 provides guidance in relation to how the sub-accounts for CFCs should be valued from an accounting perspective.


The Brazilian parent company should only be able to consolidate results until the end of 2022, if conditions set out in Law No. 12,973/2014 are satisfied. NI 1,520/2014 confirms that although the choice to consolidate their profits and losses is irrevocable for each calendar year, the Brazilian parent company may elect which of its CFCs it wishes to consolidate.

Availability of positive results earned abroad

Profits of branches, affiliates or controlled subsidiaries located abroad should be included in the Brazilian tax base on December 31 of the calendar year in which the profits are made available to the Brazilian entity. The year in which profits are considered to be made available to the Brazilian entity will generally depend on the CFC's classification as an affiliate or a controlled subsidiary.

For controlled subsidiaries, the CFC's profits should be determined based on the controlled subsidiary's local corporate legislation and should be made available to the Brazilian entity on December 31 of the year in which the CFC's profits are earned. NI 1,520/2014 also provides specific guidance around when profits will be considered to be made available in certain specific circumstances (for example, closure, liquidation, merger, sale and so on).

Taxation of profits earned by affiliates

In respect of foreign affiliates, profits should only be considered available to the Brazilian parent company when credited, paid or in other specifically defined circumstances. Therefore, profits earned by foreign affiliates should generally only be taxable in Brazil on December 31 of the year in which they were actually distributed to the Brazilian entity.


Future and accumulated losses (before January 1 2015) of the directly or indirectly controlled foreign subsidiary may be used to offset future profits of the same entity provided they are disclosed and recorded appropriately.

Foreign tax offsets

A deduction may be taken for income tax paid abroad by a foreign controlled subsidiary, in proportion to the Brazilian entity's participation, up to the amount of tax payable in Brazil in relation to the foreign income. Withholding tax is specifically included in the tax paid abroad. For affiliates eligible to apply the CFC rules on a cash basis, the foreign tax offset should be limited to the withholding tax paid on the dividends included in the Brazilian parent company's taxable income.

Deferral of tax payments

Taxpayers may be eligible to defer the payment of taxes in relation to their CFCs in proportion to the profits distributed in subsequent years. In such circumstances, a deemed distribution of 12.5% of the positive results will occur in the following year with the remaining balance deemed to be distributed in the eighth year following the assessment (if not previously distributed).

Other measures

NI 1,520/2014 also sets out the ancillary filing obligations and specific forms that will need to be completed to comply with Law No. 12,973/2014.

Philippe Jeffrey ( and Mark Conomy (

PwC, São Paulo


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