Tax Area

The 1st Panel of the Superior Chamber of the Administrative Council of Tax Appeals – CARF, the last resort of the administrative body, by five votes to three, canceled two assessments that dealt with the taxation of profits of affiliated and controlled companies abroad. 

The judgment can be considered an important milestone for taxpayers, since until then, the understanding established in the body was that Income tax (IRPJ) and Social Contribution on Net Profits (CSLL) should be levied on profits earned in countries where Brazil has signed treaties aimed at avoiding double taxation.  

In this case, from 2004 to 2006, the taxpayer failed to include in the calculation basis of the IRPJ and CSLL the profits of its subsidiary in Argentina, a country that has a double taxation treaty with Brazil, where article 7 provides that “the profits of a company of a Contracting State are taxable only in that State”. This same provision is present in all Brazil’s treaties with other countries. 

In accordance with the Tax Authorities, the profits earned by controlled companies of Brazilian companies must be taxed in Brazil, pursuant to article 74 of the Provisional Presidential Decree 2,158/01, which establishes the taxation of profits earned abroad. Thus, the law would not breach the treaties that prohibit the taxation of non-residents.