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Brazil’s income tax exemption on dividends

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Cristiane Magalhães and Fernanda Fiasco Ribeiro, of Machado Associados, explore a recent opinion (Opinion 202/2013) issued by the Office of the Attorney General of the National Treasury (PGFN) about the tax exemption applicable to the distribution of profits and dividends established by Article 10 of Law 9249/95.


The context for the issuance of Opinion 202/2013 involves Law 11638/07 which introduced significant changes in the Brazilian accounting rules, seeking convergence with International Financial Reporting Standards (IFRS) adopted in main capital markets.

Aiming at neutralising the tax consequences that would arise from the recognition of revenues, costs and expenses according to such new rules, the Federal Government established the Transitory Taxation System (RTT).

Under the RTT regime (use of which has been mandatory since 2010), legal entities must calculate their tax basis according to the criteria and accounting rules in force on December 31 2007. Such regime encompasses the corporate income tax, the social contribution on net profit and the social contributions on revenues (locally called PIS and COFINS).

In response to the tax authorities’ consultation on the extent of the tax exemption granted under article 10 of Law 9249, PGFN issued the Opinion 202/2013. The Attorney General considered that the exemption rule could not be applied without considering the neutrality brought by RTT, thus concluding that the exemption would only be applied up to the value of profits ascertained according to the accounting rules in force on December 31 2007 (fiscal profit). Therefore, any amount distributed in excess to the fiscal profit should be considered as taxable to the beneficiaries.

Alongside other arguments to defend that this conclusion is not correct, we could mention that according to the Brazilian tax rules taxation cannot be imposed by a mere extensive interpretation of a tax rule. Brazilian constitution requires the issuance of a law to create or increase taxes. Furthermore, there is no guidance on how this taxation should be implemented since previous legislation that deals with the taxation of the distribution of dividends was revoked by Article 10 of Law 9249 and cannot be applied.

We expect a review of this Opinion and will inform in case there are further developments on the matter.

Cristiane Magalhães (cmagalhaes@machadoassociados.com.br) and Fernanda Fiasco Ribeiro (ffiasco@machadoassociados.com.br) are members of Machado Associados, principal Corporate Tax correspondent for Brazil. They are based in the firm’s Sao Paulo office.

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