Brazil

Corporate - Significant developments

Last reviewed - 29 October 2024

The Brazilian Supreme Federal Court (STF) confirms that the ICMS (State VAT) should not be included in the taxable basis of PIS and COFINS (Federal VATs)

The STF concluded the long-awaited judgment of the motion for clarification in the process in which it was determined that the ICMS amount informed by the companies in their invoices should not be included in the taxable basis of the PIS and COFINS.

The understanding of the STF allows companies to stop including such amount of ICMS in the PIS and COFINS calculation basis as from 15 March 2017. For companies that did not file a judicial or administrative measure until 15 March 2017, the retroactive recovery of the undue amount is limited until that date.

Brazilian Double Tax Treaties (DTTs) recently ratified

In recent years, Brazil has signed new DTTs with Switzerland, the United Arab Emirates, Singapore, and Uruguay, all of which have already been internalised.

At the same time, continuous changes have been made to the current treaties, which had their texts revised and updated, as is the case of the treaties with Sweden, Chile, China, and Norway.

Furthermore, Brazil has also signed or ratified DTTs with Colombia, Poland, and the United Kingdom (UK). Such DTTs, however, are not yet in force.

ICMS (State VAT) rate restrictions on operations with fuels, electrical power, and telecommunications

In November 2021, the STF decided that higher ICMS rates for operations involving electrical power and telecommunications are not in line with the selectivity nature of this tax, as adopted by the State legislators, due to the essentiality of said items in daily life (as observed in Recurso Extraordinário nº 714.139).

Considering the expected financial impact to the Public Treasury of the decision above, the STF decided to modulate the effects of its decision to start only in 2024.

Nevertheless, in March 2022, the Brazilian National Congress presented Bill nº 18/2022, which aimed to change Brazilian federal legislation to consider fuels, electrical power, telecommunications, and public transportation as essential goods and services, imposing restrictions to the Brazilian States concerning the ICMS rates adopted.

Following an expedited procedure in the National Congress, in June 2022, the Bill was approved and converted into Supplementary Law nº 194/2022 with its effects starting as of the date of publication.

As a result of the changes set forth by the federal legislation mentioned above, some Brazilian States have already started to issue tax rules in order to regulate the applicable ICMS rates for these items.

New transfer pricing rules

On 29 December 2022, the Brazilian government issued the Provisional Measure (MP) 1152/22 seeking alignment with the arm’s-length principle in accordance with the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The MP was amended and ratified by the Congress, a process that was concluded on 10 May 2023. Afterwards, the MP was converted into Law 14,596, published on 15 June 2023.

Law 14,596 is mostly principles-based and delegates substantial authority to regulations issued and to be issued by the Brazilian Federal Revenue Office (RFB), through Normative Instructions (INs).

IN/RFB 2,161/2023, the first set of regulations to rule Law 14,596/23, provides guidance on the interpretations of the arm’s-length principle, related parties, controlled transactions, delineation of transactions, methods, and documentation (the procedures related to the filings of the reports, among other measurements and future implementation of transfer pricing return); however, it does not regulate important ’specific provisions‘ from the new law that, as per the RFB, will be addressed in future INs.

Brazil VAT / excise reform

On December 20, 2023, the Brazilian Congress enacted the VAT reform representing a historic milestone for Brazil, beginning the long-awaited modernization of its complex and uncompetitive tax system.

The main changes were the elimination of 4 taxes (Social Security Financing Contribution - COFINS, Contribution to the Social Integration Program - PIS, State Indirect Tax - ICMS, Local Services Tax - ISS), reduction of the general IPI (Federal Tax on Manufactured
Products) rate to zero and the creation of 3 new taxes: Federal Contribution on Goods and Services (CBS), Subnational Tax on Goods and Services (IBS) (States and Municipalities) and Federal Excise Tax (IS).

The transition period will be marked by a coexistence of two tax systems with old and new taxes collected in parallel for 7 years:

  • 2026: IBS shall have a rate of 0.1% and CBS a rate of 0.9%, whereas the amount collected shall be offset against PIS and COFINS amounts due.
  • 2027:
    • Extinction of PIS/Cofins provided that CBS is created.
    • Reduction of IPI rate to zero, except in relation to products that have industrialization in the ZFM.
    • IS collection begins.
  • 2028:
    • IBS will be charged at the State and Municipal rates of 0.05% each.
    • CBS rate will be reduced by 0.1%.
  • 2032:
    • ICMS and ISS rates will be reduced in the following proportions: 9/10 in 2029; 8/10 in 2030; 7/10 in 2031; and 6/10 in 2032.
    • ICMS and ISS benefits or incentives will be reduced in these same proportions until 2032, when they shall be effectively discontinued.
  • 2033:  Full adoption of the new consumption tax system.

After the transition period, the expected simplification and rationalization of the consumption tax regime is expected to be achieved, since the VAT reform:

  • unifies the municipal, the state, and two federal taxes on consumption into the same type of Value Added Tax (“VAT”), although divided into a Federal and a Subnational VAT (“dual VAT”);
  • brings transparency, with the tax burden visible to taxpayers and consumers, and taxation at destination, eliminating the so-called "fiscal war" between States, contributing to business decisions mainly driven by economic-financial rationale rather than tax advantages;
  • implements a fully non-cumulative system, eliminating tax leakages that are harmful to the competitiveness of Brazilian companies;
  • reinforces the tax relief on exports and investments through a reimbursement mechanism for accumulated credits;
  • contributes to reducing the country's tax litigation and compliance costs;
  • creates a fund to compensate companies benefiting from tax benefits related to ICMS, respecting the return on investments legitimately planned based on such incentives.

It is worth mentioning that the legislation will still be the subject of many discussions within the scope of elaboration of the Complementary Laws required for its full regulation.

Partial adoption of Pillar 2 via Additional CSLL (QDMTT)

Provisional Measure (MP) No. 1,262/2024, which seeks to introduce a Qualified Domestic Minimum Top-Up Tax (QDMTT) in Brazil's through the "Additional Social Contribution on Net Profits" (CSLL), along with Normative Instruction (IN) RFB No. 2,228/2024, which regulates the MP, have been published by the Federal Government, representing Brazil's partial and selective adoption of the Pillar 2 rules as from January 1, 2025.

Provisional Measures have the immediate force of federal laws but need to be ratified (or
modified or rejected) and "converted" into ordinary federal law by Congress within up to 120 days.


Out of the four GloBE (Global Anti-Base Erosion) rules, Brazil currently proposes to adopt only one, while it maintains its full-inclusion regime ("TBU") which applies the full domestic rate annually, without deferral, to all income earned not only by Controlled Foreign Companies (CFCs) but also partly owned subsidiaries.

 If approved as currently designed, the Additional CSLL will apply as from January 1st, 2025, however its payment is to be made only by the last business day of the seventh month following the end of the fiscal year – July 2026 for the 2025, and so on.