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

Brazil: Changes to the calculation basis and withholding tax for interest on net equity payments


Michela Chin

Mark Conomy

On September 30 2015, the executive branch of the Brazilian Government released Provisional Measure 694/2015 (PM 694). Among other items, PM 694 amends the relevant legislation concerning the withholding tax applicable to payments of interest on net equity (INE) as well as introducing a further limitation in relation to the calculation base for such payments.

By way of background, INE is an alternative way of remunerating shareholders for investments made in Brazilian companies, calculated based on their net equity. INE is conditioned to the existence of profits and deductible up to an amount limited to the greater of:

  • 50% of net income before corporate income tax (and after social contribution on net income) for the current year; or

  • 50% of retained earnings and profit reserves.

Such payments of INE are determined based on the pro-rated calculation of the company's net equity accounts (with certain adjustments) multiplied by the long-term interest rate (TJLP). Before the introduction of PM 694, INE payments have generally been subject to a 15% rate of withholding tax, unless the recipients are located in a tax haven, in which case the withholding tax rate should generally be 25%.

Pursuant to PM 694, the calculation basis for INE payments should consider a pro-rated calculation of the company's net equity accounts multiplied by TJLP or 5% per year, whichever is lower. This limitation is potentially significant given the TJLP for September 2015 was 6.5% (increasing to 7% for October 2015 to December 2015). Further, the PM also increases the withholding tax rate to 18% (previously 15%). For foreign shareholders that cannot take advantage of the credit for the withholding tax, this increase could result in a further tax leakage. Treaty benefits should be considered.

It is important to emphasise that a provisional measure is a provisionary law, issued by the executive branch of the Brazilian Government, which has authority of law until it is acted upon by the Brazilian Congress within a prescribed 60-day period. If Congress does not act within this initial period, then it expires unless it is extended for an additional 60-days.

PM 694 entered into effect on the date of publication, however the changes outlined above should only take effect from January 1 2016.

It is important to note that amendments to provisional measures during the process of conversion into law are very common, therefore it will be important to monitor the developments of PM 694 during the conversion process.

Michela Chin ( and Mark Conomy (

More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree