An important law was enacted recently with the potential to substantially affect the decision-making related to corporate tax matters in Brazil, benefiting not only domestic companies but also foreigners.
Brazil is known to have a complex tax legislation, which results in a culture of companies filing administrative and judicial lawsuits to challenge the tax authority for overcharging tax or due to law loopholes, among others.
In the country’ process of law, there is an administrative stage of appeals (sort of an Superior Committee of the Brazilian version of IRS (named “CARF”), before the case reaches the judicial phase. Tax cases that reach CARF are decided by a panel of judges representing the taxpayers and the tax authority.
Until now, if a case receives tied votes by the judges, the panel outcome woud be ruled in favor of the tax authority. From April on, the procedure has changed so in tied vote situations the final decision will be pro-taxpayer, regardless if Brazilian or foreigner.
Such new law development in a major milestone in favor of taxpayers and will impact some past decision by CARF on relevant matters affecting foreign investors and companies doing business in Brazil, including tax on capital gains in certain M&A transactions, tax planning and corporate restructurings.