8/3/2021
On July 13, 2021, Federal Representative Celso Sabino (PSDB-PA), rapporteur of Bill No. 2337 / 2021, which marks the 2nd phase of the reform of the Brazilian Tax System, submitted a proposed substitute text to the original draft submitted by the Federal Government to the National Congress, promoting some substantial changes, mainly due to the numerous criticisms made by various sectors of the economy to the original draft of the bill.
The main changes of the substitute text proposed the reduction of the corporate income tax (IRPJ) rate to 5% in 2022 and to 2.5% in 2023 – according to the original version of the bill, the final reduction of the rate would be to 10% -, with the social contribution (CSLL) remaining at 9%. The current IRPJ rate is 25% (15% base and 10% additional rate).
The new draft, however, maintained the withholding income tax calculated at a rate of 20% on the distribution of profits and dividends from companies to its shareholders (currently exempted of income tax) as well the prohibition of deducting interest on shareholder’s equity (JCP) from the IRPJ and CSLL calculation basis.
However, the new proposal exempts the withholding income tax from the distribution of profits and dividends between companies of the same economic group.
With this new draft, notably with regard to income taxation, according to the market projections, the effective tax rate of income taxation will change from the current 34% to 37.2%, instead of the 43.2% of the original draft.
Furthermore, the substitute text has maintained the possibility of offsetting tax losses and the negative base of the CSLL calculated in a given trimester in the three subsequent trimesters, without having to observe the current limitation of 30%, regardless of the calendar year.
In order to preserve some of the current rules, the new draft has removed from the bill some of vigorously criticized provisions, such as: a) the limitation on the possibility of amortizing goodwill and capital gains; b) the obligation to pay in the share capital of foreign companies at the market value of the financial assets previously designated to do so; and c) the taxation of capital gains upon indirect sale of assets by a resident or domiciled abroad.
In short, the Bill No 2337/2021 can still be extensively modified in the National Congress of Brazil and, if approved, it will significantly change the current Brazilian tax scenario.
Our tax team is available to provide clarifications and guidance on the topic discussed.
Co-authors: Phillipe da Cruz Silva and Tiago Zonta Guerreiro
