The Brazilian Administrative Council of Tax Appeals (CARF) recently ruled in favor of taxpayers in cases discussing the imposition of Withholding Income Tax (IRRF) on earnings distributed to foreign investors in Private Equity Funds (FIPs).
Through unanimous decisions, CARF determined that the legislation does not require the identification of the ultimate beneficiary for applying the 35% IRRF rate, leading to the annulment of the tax assessments.
During the hearings, the taxpayers argued that the zero IRRF rate should apply to FIP earnings paid to beneficiaries abroad, except when located in tax havens. However, the Federal Revenue Service advocated for applying the 35% rate in cases where the beneficiary was not identified.
CARF emphasized that the legislation only requires the identification of the direct beneficiary, not the ultimate beneficiary. The Federal Revenue Service’s insistence on identifying the ultimate beneficiary to apply tax assessments contradicts the policies promoting foreign investment in Brazil as outlined in tax legislation.
The Attorney General of the National Treasury (PGFN) stated that CARF’s decisions recognized the nullity of the tax assessments for failing to correctly apply the law to the specific cases.
