Publications - 11/10/21

Brazilian Higher Chamber of Federal Administrative Tax Court (CARF) excludes collection of income tax on investment subsidies

Investment subsidies are the result of tax benefits (tax exemption or reduction) granted by law to foster the implementation or expansion of economic enterprises.

Brazilian Law no. 12,973/2014 and Brazilian Complementary Law n. 160/2017 provided for the objective requirements so that the subsidies were not taxed by the income tax, but the federal tax authorities began to analyze the local rules, in particular the tax benefits related to VAT tax (ICMS) granted by the states, seeking the “intention” of the legislator who granted the tax benefit; and to check the effectiveness of the application of the benefit’s resources in the implementation or expansion of economic investments, as a condition to maintain the exemption.

Now, CARF has decided (in practical terms) that, once the formal requirements and objectives of bookkeeping and use of grants are met, as well as the requirement of registration and deposit, it would not be up to the tax authorities to assess the intention of the legislator, or particularities of the law to apply or not the income tax exemption rule on investment subsidies. Once the objective requirements of the law are met, it is an investment subsidy, which is not subject to income tax.

(Decision 9101-005.508, of the 1st Higher Chamber of Federal Administrative Tax Court – CARF)