On December 13, 2022, Brazil’s highest administrative tax appeals panel, the Administrative Tax Appeals Council (CARF), did away with arbitration of profit for Brazilian income tax purposes (Corporate Income Tax – IRPJ and Social Contribution on Net Income – CSLL) for subsidiaries of Brazilian companies set up in the US State of Delaware and in Panama.
Under a strict interpretation of Brazilian legislation, in case of non-submission of tax documents and record books, the Brazilian Federal Revenue Bureau (RFB) is to arbitrate a company’s profit and, based on this amount, set IRPJ and CSLL taxation. With respect to cases where Brazilian companies have subsidiaries overseas, our legislation calls for financial statements to be drawn up according to the norms of the commercial legislation in effect in the country of domicile.
Nonetheless, in determined locations and under specific circumstances – as in the case of Delaware and Panama – there is no local requirement for preparation and publication of financial statements.
Despite this waiver regarding preparation of financial statements, the RFB recently assessed a company with registered offices here and arbitrated the profit accrued by its overseas subsidiaries, alleging that it had not submitted the latter’s financial statements.
However, the prevailing interpretation is that such profit cannot be arbitrated, since the Brazilian company is not subject to such arbitration in relation to that part of its overall accrual that comes from subsidiary companies headquartered in places that waive the preparation of financial statements.