Tax | Tax Benefits May Encourage M&A Transactions in Brazil

The Brazilian legislation on tax incentives has increased the benefits for companies that correctly comply with the requirements for their use.  

The financial-fiscal incentives and tax benefits related to ICMS, granted by states, are considered “investment subsidies” from 2017 onwards. Thus, they may no longer be computed in the determination of taxable income for the calculation of corporate tax (IR) and the calculation basis for the social contribution on net income (CSLL). This therefore reduces the burden of these taxes, which is 34% for most companies.  

In order to do so, certain requirements by law must be observed, among which, (i) the need that they have been granted as a stimulus for the implementation or expansion of economic enterprises, and (ii) their registration as a corporate dividend reserve in its books. 

The Federal Revenue has come to understand that it is possible to acquire equity with funds from investment subsidies granted in the form of tax or financial-fiscal incentives and benefits related to ICMS, provided that all conditions provided for by law are respected.  

It highlights, mainly, that the acquisition is related to the stimulus to the implantation or expansion of economic enterprises.  This interpretation by the tax authority is welcome as the law was not clear on the point. And the consequence is that tax legislation ends up stimulating and encouraging M&A operations.


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