By Bruno Santo and Alice Bryan

 

On October 3, 2024, Brazil introduced Provisional Measure No. 1,262, aligning its tax regulations with the OECD’s Global Anti-Base Erosion (GloBE) Rules. This is part of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which establishes a minimum effective tax rate (ETR) of 15% for large multinational enterprises (MNEs).

Key Features of the Legislation:

  • Adoption of a 15% Minimum ETR: The legislation introduces an additional Social Contribution on Net Income (CSLL) to ensure that MNEs operating in Brazil meet the 15% minimum effective tax rate on global profits, as required by the OECD’s GloBE rules.
  • Scope: The rules apply to Multinational Groups with entities in Brazil and with annual consolidated revenues of €750 million or more, making these groups subject to the GloBE minimum tax regulations, similar to those implemented in other G20 and OECD countries.
  • Calculation of the Effective Tax Rate (ETR): The ETR is calculated as the ratio of Adjusted Covered Taxes (taxes paid on income and profits) to GloBE Income (global book profits), expressed as a percentage. If the ETR in a particular jurisdiction is below 15%, the difference will be collected through an additional CSLL in Brazil. The formula for calculating the Additional CSLL in Brazil is: Additional CSLL = (15% - ETR) x GloBE Income (in Brazil).

Key Takeaways:

  • Government Initiative: Unusually, the Brazilian government has issued both the executive order (Provisional Measure) and specific regulations simultaneously, indicating a strong commitment to getting this approved swiftly.

  • Legislative Process: The Provisional Measure must be approved by Congress. If passed in 2024, these rules will take effect on January 1, 2025.

  • OECD Guidelines: OECD commentary and guidelines have been included as the official interpretation framework for the new rules.

  • Impact on MNEs: Multinational corporations (MNCs) with business in Brazil will need to reassess their Effective Tax Rate (ETR), as calculated under the new provisions.

  • Impact on Tax Incentives and Planning Strategies: Several tax incentives and planning strategies widely utilized in Brazil may be significantly affected, including:

    • SUDENE/SUDAM incentives,

    • Goodwill amortization,

    • Interest on Net Equity (INE),

    • R&D incentives,

    • New government grant tax credit mechanisms.

We will closely monitor the approval process of these regulations, carefully assess their potential impacts, and take the time to fully understand the details of the legislation.