Brazil

Corporate income is taxed at federal level through two charges. The first is the Corporate Income Tax (IRPJ). It is a federal tax used to fund general public expenditure. Part of its revenue is shared with states and municipalities through the constitutional participation funds, mainly state and federal District Participation Fund and Municipalities Participation Fund (FPE and FPM). The second is the Social Contribution on Net Profit (CSLL). It is a federal social contribution earmarked for social security, although the Federal Revenue Earmarking Release Mechanism (DRU) currently detaches 30% of certain federal revenues, including social contributions, from their original budget allocation until 2032.

For ordinary companies, the combined nominal rate is 34%. IRPJ is levied at 15%, plus a 10% surtax on the portion of taxable profit exceeding BRL 20,000 per month, or BRL 60,000 per quarter. CSLL is levied at 9% for companies in general. Higher CSLL rates apply to specific financial, insurance and capitalization entities. From 1 April 2026, banks are subject to CSLL at 20%. Insurance companies, securities dealers, foreign exchange and securities brokers, real estate credit companies, credit card administrators, leasing companies, credit cooperatives, and savings and loan associations are subject to CSLL at 15%. Payment institutions, organized over-the-counter market administrators, stock and commodities exchanges, and clearing and settlement entities are subject to 12% from 1 April 2026 to 31 December 2027, and to 15% from 1 January 2028. Credit, financing and investment companies, as well as capitalization companies, are subject to 17.5% from 1 April 2026 to 31 December 2027, and to 20% from 1 January 2028. Other legal entities remain subject to the general 9% CSLL rate. There is no state or municipal corporate income tax in Brazil.

Brazilian companies usually compute IRPJ and CSLL under either the actual profit regime, lucro real, or the presumed profit regime, lucro presumido. Under lucro real, the tax base starts from accounting net profit and is adjusted by statutory add-backs, exclusions and tax loss rules. This regime is mandatory for companies whose total revenue exceeded BRL 78 million in the previous calendar year, and for certain taxpayers, such as banks, financial institutions, insurance companies, companies with foreign profits or gains, companies using certain income tax incentives, factoring companies and securitization companies.

Lucro presumido is optional for companies whose total revenue in the previous calendar year did not exceed BRL 78 million, provided that they are not legally required to use lucro real. The nominal rates remain the same, 15% IRPJ, 10% IRPJ surtax where applicable, and 9% CSLL. What changes is the tax base. Instead of taxing actual net profit, the law applies statutory profit margins to gross revenue. The effective rate therefore depends on the activity:

Brazil has implemented a global minimum tax through a domestic minimum top-up tax in 2024. The Brazilian rule was enacted as an Additional CSLL, not as a new standalone corporate income tax. Its purpose is to ensure a minimum effective taxation of 15% for Brazilian constituent entities of multinational groups within the scope of Pillar Two. The rule applies to multinational groups with consolidated annual revenues of at least EUR 750 million in at least two of the four fiscal years preceding the tested year.

The Brazilian Additional CSLL was designed as a Qualified Domestic Minimum Top-up Tax, or QDMTT. This means that Brazil seeks to collect, in Brazil, any top-up tax required to bring the effective tax rate of Brazilian operations to 15%, instead of allowing that residual taxing right to be exercised abroad through an Income Inclusion Rule (IIR) or an Undertaxed Profits Rule (UPR).

Brazil has also formally requested OECD recognition under the recent side-by-side package. That request is relevant mainly for Brazilian-parented groups, since Brazil has not implemented a domestic IIR for the time being.

The Additional CSLL operates by jurisdiction. The first step is to verify whether a safe harbor applies. These rules may reduce compliance and, in certain cases, deem the top-up tax to be zero. In general terms, the relevant safe harbors include a de minimis test, based on low revenue and low profit in the jurisdiction, a simplified effective tax rate test, and a routine profits test, under which no top-up tax is due if the substance-based return, calculated by reference to payroll and tangible assets, absorbs the GloBE profit.

If no safe harbor is available, the taxpayer may need to perform either a simplified calculation or the full GloBE calculation. The simplified calculation uses a reduced set of data, generally based on qualified financial statements and country-by-country reporting information, to test whether the jurisdiction reaches the minimum effective rate without applying every technical adjustment required under the full rules.

The full calculation starts from the financial accounting profit or loss of each Brazilian constituent entity. That amount is adjusted to determine GloBE income or loss. The covered taxes are also adjusted. The effective tax rate is then calculated by dividing adjusted covered taxes by net GloBE income in Brazil. If the result is below 15%, the difference becomes the top-up tax percentage. That percentage is applied to the excess profit, which is the net GloBE income reduced by the substance-based income exclusion. The substance exclusion is calculated by reference to eligible payroll costs and eligible tangible assets located in Brazil.

Resident companies are taxed on worldwide income (Brazilian TBU). Ordinary business income and capital gains are generally included in the same IRPJ and CSLL tax base. For companies taxed under the actual profit regime, capital gains are part of taxable profit and are subject to the combined 34% rate. For companies under the presumed profit regime, capital gains are added to the presumed tax base and taxed separately under the same nominal IRPJ and CSLL rates. There is no separate corporate capital gains tax for resident companies.

Brazil also has a broad worldwide taxation regime for foreign subsidiaries. Under Law No. 12,973/2014, the Brazilian parent must include in its IRPJ and CSLL bases the portion of the investment adjustment corresponding to profits earned by a direct or indirect controlled company abroad, before foreign income tax and excluding foreign exchange variation. The inclusion is annual. It does not depend on dividend distribution.

This regime is usually discussed together with CFC rules, but it is broader than the standard anti-deferral model. Brazilian TBU applies to profits of direct and indirect foreign controlled companies, whether located in low-tax or high-tax jurisdictions, and regardless of whether the income is active or passive. For this reason, part of the Brazilian literature treats the regime as worldwide taxation of foreign profits, rather than as a typical CFC rule.

Foreign tax paid abroad may generally be credited against Brazilian IRPJ and CSLL, subject to statutory limits. Until calendar year 2029, Law No. 15,079/2024 extends two relevant relief mechanisms under Brazil’s worldwide taxation regime: the option to consolidate profits and losses of certain foreign subsidiaries, and the 9% deemed credit for investments in foreign companies carrying out specified activities, such as food and beverage manufacturing, construction, infrastructure works and general industrial activities.

Foreign affiliates are treated differently. If the statutory conditions are met, profits of foreign affiliated companies are generally taxed in Brazil when made available to the Brazilian investor. If the conditions are not met, taxation may occur on an accrual basis. The distinction depends on factors such as the jurisdiction of the investee, the existence of privileged or low-tax regimes, and the proportion of active income.

Non-residents are not taxed in Brazil on worldwide income. They are taxed only on Brazilian-source income and on gains derived from assets or rights located in Brazil, usually by withholding at source. As a general rule, capital gains derived by non-residents from Brazilian assets are subject to withholding income tax at progressive rates from 15% to 22.5%. If the non-resident is located in a low-tax jurisdiction, a 25% rate may apply. Special rules may apply to regulated portfolio investments in Brazilian financial and capital markets.

Brazil’s taxation of corporate income is also affected by the new transfer pricing legislation. Law No. 14,596/2023, mandatory from 2024 and regulated by Normative Instruction No. 2,161/2023, replaced the former fixed-margin model with a system aligned with the OECD Transfer Pricing Guidelines. The new regime adopts the arm’s-length principle as the standard for controlled transactions and applies for IRPJ and CSLL purposes.

The scope of the rules is broad. They apply to any commercial or financial relationship between related parties, whether direct or indirect, including transactions with tangible goods, commodities, intangibles, services, cost-sharing arrangements, business restructurings and financial transactions. The concept of related party is no longer limited to formal corporate links. It also captures cases of significant influence capable of affecting the conditions of the transaction. Transactions with parties located in low-tax jurisdictions or benefiting from privileged tax regimes are also subject to transfer pricing control.

The new rules require an economic delineation of the controlled transaction, a functional and risk analysis, the selection of the most appropriate method, and a comparability analysis. The Brazilian methods now follow the OECD model, including comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split methods. The rules also introduced OECD-style documentation, including the Country-by-Country Report, Master File and Local File, with specific monthly reporting for commodity transactions. These rules may affect the taxable basis of Brazilian companies by requiring primary adjustments to the IRPJ and CSLL bases when controlled transactions are not consistent with arm’s-length conditions.

Brazil has a broad system of indirect taxation. The current system still includes federal Social Integration Program Contribution Social (PIS) and Security Financing Contribution (COFINS) on gross revenue, Federal Excise Tax on Manufactured Products (IPI), State VAT on Sales of Goods and Interstate and Intermunicipal Transportation and Communication Services (ICMS), and Municipal Services Tax (ISS). This system is being gradually replaced by the consumption tax reform introduced by Constitutional Amendment No. 132/2023. The transition runs from 2026 to 2032, with the new model fully replacing the current structure in 2033.

The reform creates a dual VAT. The federal VAT is the Contribution on Goods and Services (CBS). The subnational VAT is the Tax on Goods and Services (IBS), shared by states, the federal district and municipalities. CBS replaces PIS and COFINS. CBS and Selective Tax replace IPI. IBS replaces ICMS and ISS.

IBS and CBS are designed as broad-based, non-cumulative, destination-based taxes on transactions involving goods, services, rights and intangibles. Complementary Law No. 214/2025 established the general rules for IBS, CBS and the Selective Tax. Complementary Law No. 227/2026 added the second layer of regulation, including rules on the IBS Management Committee and the administrative framework for the new tax.

The regulatory phase has also begun. The federal CBS was recently regulated by Decree No. 12,955/2026. The IBS was regulated by CGIBS Resolution No. 6/2026, which expressly states that the IBS is a tax of shared competence between States, the Federal District and municipalities, instituted under Complementary Law No. 214/2025.

The Selective Tax is not a VAT. It is an excise-type tax on the production, extraction, commercialization or importation of goods and services considered harmful to health or to the environment. Complementary Law No. 214/2025 defined the general taxable framework and listed relevant categories, but ordinary federal law is still required to set the applicable Selective Tax rates. For mineral goods, the complementary law provides a specific maximum rate of 0.25%, but the effective rate also depends on ordinary legislation.

A specific state contribution must also be noted. Constitutional Amendment No. 132/2023 inserted Article 136 into the Transitional Constitutional Provisions Act. Under that rule, states that, on 30 April 2023, had infrastructure or housing funds financed by contributions on primary and semi-finished products may institute similar contributions. These contributions are temporary and must be extinguished by 31 December 2043. They are not part of the dual VAT. They operate as a transitional and exceptional source of state revenue linked to pre-existing fund structures.

Brazilian law has several withholding income tax (WHT) rules applicable to corporate income. For domestic corporate payments, the most common WHT rates are 1.5% on professional services, commercial representation, brokerage, advertising and certain advisory services, and 1% on cleaning, conservation, security, surveillance and labor leasing services. Interest on net equity is generally subject to 15% WHT. Payments to unidentified beneficiaries, or payments without proof of the underlying transaction or cause, are subject to 35% final WHT. Financial investment income is subject to specific withholding rules, generally at rates ranging from 22.5% to 15%, depending on the investment term, with separate rules for investment funds and real estate funds.

Cross-border remittances are more relevant in practice. As a general rule, Brazilian-source income paid, credited, delivered, used or remitted to a legal entity resident abroad is subject to WHT at 15%, unless a specific rule applies. Technical services, technical assistance, administrative assistance and similar services are generally subject to 15% WHT. Royalties are also generally subject to 15% WHT. Other service income may be subject to 25%, depending on its legal classification. Payments to beneficiaries resident or domiciled in low-tax jurisdictions or privileged tax regimes are generally subject to 25% WHT, except in specific statutory cases. Capital gains derived by non-residents from assets located in Brazil are taxed under the general capital gains rates, but a 25% rate applies when the beneficiary is resident in a low-tax jurisdiction.

Tax treaties may reduce or limit Brazilian WHT. The analysis depends on the nature of the payment. Interest, royalties, dividends and capital gains are subject to the distributive rules of each treaty. For services, Brazilian practice has historically been more complex, especially where protocols treat technical services as royalties or where the treaty contains specific language on technical assistance. In all cases, domestic law defines the taxable event first, but the treaty may limit Brazil’s taxing power.

Brazil also levies CIDE on certain outbound remittances. CIDE is not formally an income tax. It is a federal contribution charged to the Brazilian payer, generally at 10%, on payments, credits, deliveries, use or remittances abroad related to royalties, technology transfer, technical services, technical assistance, administrative assistance and similar items. The Supreme Court confirmed the constitutionality of CIDE Remittances in Theme 914, including its broad incidence on royalties, technical services and administrative assistance, provided that the proceeds are applied to science and technology.

Because CIDE is legally imposed on the Brazilian payer and is not an income tax on the foreign recipient, the prevailing administrative view is that income tax treaties do not restrict its charge. This position remains debated. Part of the scholarship argues that CIDE may operate economically as an additional tax on the same cross-border payment, especially after the reduction of WHT from 25% to 15% and the simultaneous creation or expansion of CIDE at 10%. Under that view, CIDE may frustrate the practical effect of treaty rate limitations, even if it is not formally covered by the treaty.

Dividends require a separate note. Historically, dividends paid by Brazilian companies were exempt from WHT, whether paid to Brazilian residents or to non-residents. Law No. 15,270/2025 changed this rule. From 2026, dividends paid, credited, delivered, used or remitted to beneficiaries abroad are subject to 10% WHT, with no value threshold. The rate may be reduced by an applicable tax treaty. Distributions to foreign governments, sovereign wealth funds and qualifying foreign pension entities remain exempt under specific rules.

The non-resident beneficiary may also be entitled to recover part of the WHT. Law No. 15,270/2025 created a specific credit mechanism for cases in which the Brazilian company’s effective tax rate on the profits distributed, increased by the 10% WHT on the outbound dividend, exceeds the nominal combined IRPJ and CSLL rate applicable to the distributing company. The relevant cap is generally 34%, but it may be 40% or 45% for specific financial, insurance and capitalization entities. In those cases, the foreign beneficiary may elect to claim a credit corresponding to the excess burden. The credit is calculated on the amount of dividends paid, credited, delivered, used or remitted abroad.

Brazil does not have a General Anti-Avoidance Rule (GAAR) allowing the tax authorities to disregard valid legal acts or transactions merely because they reduce the taxpayer’s tax burden. Brazilian law contains specific anti-abuse rules, and the tax authorities may challenge sham, fraud, simulation or other unlawful structures. But there is no general rule that authorizes the tax administration to replace a lawful transaction with another hypothetical transaction solely to collect more tax.

This conclusion became clearer after the Supreme Court judgment in ADI No. 2,446, decided in 2022. The case concerned the sole paragraph of Article 116 of the National Tax Code, introduced by Supplementary Law No. 104/2001. The Court upheld the constitutionality of the provision, but its reasoning was narrower than the label often used for it. The provision does not prohibit tax planning. It does not create a general anti-avoidance rule. It is aimed at cases of simulation or dissimulation, that is, cases in which the taxpayer hides a taxable event that has actually occurred, or hides the real nature of the elements of the tax obligation.

The relevant distinction is between lawful tax avoidance and unlawful tax evasion. If the taxpayer enters into formally valid acts and transactions before the taxable event occurs, and thereby avoids the legal situation that would give rise to taxation, the tax reduction must in principle be respected. The tax authority may not disregard valid and non-simulated transactions only because the taxpayer chose the less taxed path. The sole paragraph of Article 116 reaches simulation or dissimulation. It does not authorize the creation of a taxable event that did not occur. This also follows from Article 108 of the National Tax Code, which allows analogy as an interpretative method only in the absence of an express rule, but expressly prohibits its use when it results in the imposition of tax not otherwise provided by law. Therefore, the tax authorities may not — by analogy, recharacterization or economic equivalence — tax a transaction that falls outside the statutory taxable event.

Although the Supreme Court upheld the constitutionality of the sole paragraph of Article 116, it did so on the premise that the provision must be read as an anti-simulation rule, aimed at unlawful dissimulation, and not as a GAAR capable of overriding lawful and non-simulated tax planning.

There is also a procedural issue. Article 116 states that any disregard of acts or transactions must observe procedures to be established by ordinary law. More than two decades after its enactment, no general federal ordinary law has been enacted to regulate that procedure. For this reason, its application remains limited. In practice, tax authorities often rely instead on the Civil Code, on the rules on simulation, on abuse of rights, on fraud to law and on general private-law categories to challenge structures they regard as abusive. This practice remains controversial when the transaction is valid, real and non-simulated.

Brazil has also not adopted a business purpose test as a binding domestic rule. That theory, developed mainly in the United States, allows tax authorities to disregard transactions that have no non-tax business purpose. Brazilian law did not incorporate that test as a general standard. Therefore, a lawful and non-simulated transaction should not be disregarded merely because its only purpose was to reduce tax. The absence of an extra-tax business reason may be relevant as evidence in a simulation inquiry, but it is not, by itself, a legal ground to deny the effects of a valid transaction.

The administrative practice has not fully converged with the Supreme Court’s 2022 guidance. Tax assessments still frequently invoke lack of business purpose, artificiality or absence of economic substance. This keeps tax planning litigation active in Brazil. Even so, recent discussions before the Administrative Tax Appeals Council (CARF), indicate a gradual change. Some decisions have begun to apply ADI No. 2,446 more strictly, recognizing that lawful, real and non-simulated structures cannot be disregarded solely because they generate tax savings.

Tax controversies in Brazil are mainly driven by the size and complexity of the tax system, the adversarial relationship between tax authorities and taxpayers, and the structure of tax collection. This conclusion is supported by empirical research conducted by Insper’s Tax Research Center, through its Tax Litigation Observatory, which monitors administrative and judicial tax disputes at federal, state and municipal levels. It is also supported by a separate empirical study prepared by Insper for the Brazilian National Council of Justice (CNJ) on the causes and effects of judicial tax litigation. These studies show the scale of the problem: Brazilian tax litigation reached approximately 75% of GDP in 2019 and 74.8% of GDP in 2020.

According to the Insper/CNJ study, the most relevant taxes in 2019, measured by the ratio between litigation stock and annual tax revenue, were ICMS, IRPJ, ISS, PIS/COFINS and social security contributions. These percentages show how large the accumulated administrative and judicial disputes were in relation to one year of revenue from the relevant tax: on that basis, ICMS litigation reached 110.1%, meaning that the stock of ICMS disputes exceeded one full year of ICMS revenue. IRPJ litigation reached 64%, ISS 61.5%, PIS/COFINS 46.2%, and social security contributions 42.2%.

A different picture appears when the analysis is made by number of judicial cases. IPTU, the municipal urban property tax, appears as the most frequent tax in judicial litigation. Depending on the extraction method used, it represented 65.78% or 24.98% of the judicial tax cases collected by the study. The report warns that this does not mean that IPTU is the most complex tax. Its high volume is explained by its broad taxpayer base and by the fact that assessments are made per property, not only per taxpayer.

Interpretative uncertainty is another central cause. In federal tax consultations filed between 2014 and 2019, the most frequent matters were COFINS, IRPJ and CSLL, social security contributions, individual income tax and Simples Nacional.

The broader causes are institutional. The Insper/CNJ executive summary identifies the drafting, interpretation and application of tax legislation as a relevant source of disputes.

Tax controversies usually begin in the administrative sphere. If a tax assessment is issued, the taxpayer may file an administrative defense before the tax litigation body of the same taxing authority, federal, state or municipal. At federal level, the general framework is Decree No. 70,235/1972. Similar rules exist at state and municipal levels.

Administrative tax litigation normally has two levels of review. At federal level, the first decision is issued within the Federal Revenue administrative structure. The appeal is decided by CARF, a federal administrative court composed of representatives of the Treasury and of taxpayers. Several states follow a similar model. In tie cases, the casting vote is usually held by the chair, normally a Treasury representative. At federal level, this rule was reorganized by Law No. 14,689/2023, which reinstated the casting vote in favor of the Treasury in CARF tie cases, with mitigation for penalties in specific cases.

If the tax assessment is cancelled in the administrative sphere, the relevant taxing authority may not take the case to court to reinstate the charge. If the assessment is upheld, in whole or in part, the unpaid debt is registered as active tax debt and may be collected through a tax foreclosure action. Tax foreclosures are governed mainly by Law No. 6,830/1980. As a rule, the taxpayer must secure the debt before filing embargos à execução fiscal, the ordinary defense in a tax foreclosure.

The taxpayer may also go directly to court before registration as active debt or before foreclosure. This may be done to secure the debt and avoid default-related effects, including restrictions on tax clearance certificates, or to challenge the tax charge and seek an injunction suspending its enforceability.

Outside litigation, Brazil has a formal tax ruling procedure. In federal matters, the taxpayer may file a consulta to request the tax authority’s interpretation of tax legislation. A favorable ruling protects the taxpayer that applies it. An unfavorable ruling may require the taxpayer to regularize its position within the applicable period, often with reduced exposure to penalties. Federal COSIT rulings bind the Federal Revenue Service and must be followed by tax auditors in similar cases.

Transfer pricing also has a specific ruling mechanism. Law No. 14,596/2023 authorizes the Federal Revenue Service to establish a specific consultation procedure on the methodology to be applied to controlled transactions. The draft regulation released by the Federal Revenue Service treats this procedure as a unilateral Advance Pricing Agreement (APA).

Brazil has been moving from a purely adversarial model to a broader set of consensual mechanisms for tax disputes. The most important recent instrument is federal tax settlement, or transação tributária. It allows negotiated resolution of federal tax debts, especially debts enrolled as federal active debt, through individual proposals or adherence to public settlement notices. The settlement may include payment schedules, discounts on fines, interest and legal charges for credits considered difficult to recover, and adjustments to guarantees.

Procedural agreements also have practical relevance. At federal level, the Attorney General’s Office of the National Treasury (PGFN) has used procedural tax agreements to regulate matters such as payment schedules, guarantees, enforcement calendars and forms of asset foreclosure in tax executions. This practice was encouraged after the 2015 Code of Civil Procedure and PGFN regulations issued from 2018 onward.

Tax mediation is still emerging. The CNJ Recommendation No. 120/2021 recommends that judges dealing with tax cases encourage consensual solutions whenever possible, including negotiation, conciliation, mediation and tax settlement. It also recommends tax CEJUSCs and institutional protocols with tax authorities. Porto Alegre enacted a municipal tax mediation model, and Bill No. 2,485/2022 seeks to create federal tax mediation as a consensual prevention and resolution mechanism between the Federal Treasury and taxpayers.

Another relevant development is SEJAN, the AGU Chamber for the Promotion of Legal Certainty in the Business Environment. It is not a formal tax court or arbitration body. It is an institutional forum for technical dialogue between the AGU, government bodies, civil society, business representatives, workers’ representatives and research institutions. Its purpose is to address complex regulatory and tax issues, improve predictability and reduce litigation. A useful example is the request filed by the Instituto Mineiro de Direito Tributário (IMDT) for revocation of an outdated Federal Revenue Normative Instruction, IN SRF 267/02, which was still being used in litigation to deny tax incentives to companies in export processing zones. After SEJAN’s intervention, the Federal Revenue Service acknowledged that the rule should be updated.

Tax arbitration is not yet generally available in Brazil. Arbitration involving the public administration has been expressly accepted since Law No. 13,129/2015, but tax arbitration still depends on specific legislation. Several bills are pending in Congress, including proposals to use arbitration in tax foreclosures, during tax audits for factual controversies, or more broadly for tax and customs disputes. The debate is active, but Brazil has not yet adopted a general tax arbitration regime.