This content is from: Brazil

Brazil: Provisional Measure No. 627/2013 – Increase of PIS and COFINS taxable bases

Philippe Jeffrey
Gustavo Carmona
As already reported in previous editions, Provisional Measure (MP) No. 627/2013 introduced significant changes to Brazilian tax legislation. Another such important change relates to the definition of revenue, which has a direct impact on taxpayers' PIS and COFINS liabilities. PIS and COFINS are social contributions levied on a company's gross revenue and may be calculated under a non-cumulative regime at the combined rate of 9.25% (with tax credits available) and a cumulative regime at the combined rate of 3.65% (without tax credits).

In this sense, the MP broadens the definition of revenue for both regimes so as to include not only the proceeds from the sale of goods and services (as under previous rules) but also other revenues deriving from the activity or core business of the company. This new definition has a severe impact on taxpayers subject to the cumulative regime such as financial institutions. There is a discussion in the Supreme Court questioning if the spread is considered a revenue subject to PIS/COFINS, as financial revenues are generally not subject to these contributions. With the new definition including any revenue related to a company's activity or core business, such spread revenue is now subject to PIS/COFINS.

Additionally, companies under the cumulative regime must now recognise non-operational income such as the sale of fixed assets as revenue, as well as income earned through equity pick-up, the latter of which greatly impacts the activity of holding companies in Brazil which would now suffer an increased tax burden as a result.

Considering that these changes were introduced by a provisional measure of the executive branch, the Brazilian Congress has up to 120 days to approve it and convert it into law. In this regard, note that more than 500 amendments to the MP have been proposed by congressmen and senators, which will most likely result in profound changes to the final text of the law.

Tax treaty signed with Turkey now in force

On November 18 2013, the government published Federal Decree No. 8.140 which ratifies the treaty for the avoidance of double taxation signed between Brazil and Turkey on December 16 2010. Under the terms of the agreement, taxation of dividends in the source state is limited to 15% (or 10% if the beneficiary of such payments holds at least 25% of the equity of the company remitting the dividends). With regards to interest, taxation in the source state cannot exceed 15%. As for royalties, which, according to the Treaty's Protocol, also include fees for technical or administrative services, taxation of such remittances may not exceed 15% in the case of royalties for the use of trademarks and 10% in all other cases.

Also, please note that the protocol of the treaty establishes that its provisions do not preclude either party from applying its respective controlled foreign company or thin capitalisation rules.

Philippe Jeffrey ( and Gustavo Carmona (
Tel: +55 11 3674 2271

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