On December 31, 2024, Normative Instruction No. 2,245/2024 was published in the Official Gazette of the Union, amending Normative Instruction No. 2,228/2024 (“IN 2.228”), which governs the application of the Additional CSLL.
The Additional CSLL was introduced in October 2024 by Provisional Measure No. 1,262/2024 (“MP 1.262”) – still in effect – and recently, Law No. 15,079/2024 (“Law 15.079”) was sanctioned, containing almost the same terms as MP 1.262.
MP 1.262 was enacted to align Brazilian tax rules with the international guidelines of the Global Anti-Base Erosion Rules (“GloBE”), created by the OECD and the G20, aimed at ensuring a global minimum taxation of 15% on the profits of multinationals, preventing profit shifting to low-tax jurisdictions and ensuring that each country receives its fair share.
The implementation of the additional CSLL was regulated by the Brazilian Federal Revenue (“RFB”) through IN 2.228, which was in a public consultation process until November 2024. According to IN 2.228, the additional CSLL must meet the criteria of a Qualified Domestic Minimum Top-up Tax (“QDMTT”), a mechanism that ensures adequate collection in compliance with global minimum tax rules.
With the approval of Law 15.079, IN 2.228 was amended to encompass, besides the suggestions presented in public consultation, the terms of the new law. Among the changes made to IN 2.228, we highlight:
1. General Provisions
The new wording of Article 1 of IN 2.228 explicitly mentions the other GloBE Rules provided by the OECD to ensure global minimum taxation: the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR).
A provision (paragraph 4 in Article 1 of IN 2.228) was included that expressly states that IN 2.228 aims to regulate the Additional CSLL so that it qualifies as a QDMTT.
Furthermore, paragraph 5 was added to Article 1 of IN 2.228, which determines as a subsidiary source of the rules governing the Additional CSLL the Model GloBE Rules, the Commentary to the GloBE Rules, the Agreed Administrative Guidance, and other rules, guidelines, and procedures approved by the Inclusive Framework of the OECD until December 2023.
2. Passive Income – CFC Regime
For the purpose of determining the Additional CSLL, the effective tax rate calculated for the jurisdiction through Adjusted Covered Taxes, which are taxes that actually apply to the profit, such as income tax and other contributions that directly impact the profit, adjusted according to IN 2.228.
According to Article 47 of IN 2.228, the amount of taxes on profit included in the accounting of the Owning Constituent Entity, due to the CFC regime (regime that taxes the profits of foreign subsidiaries directly in the owning entity), will be (i) excluded from the calculation of the Adjusted Covered Taxes of the Owning Constituent Entity and (ii) disregarded in the calculation of the Adjusted Covered Taxes of the Constituent Entity.
With the recent amendment of IN 2.228, Article 47-A was included, allowing the taxes on profit that impact passive incomes of Constituent Entities and recognized by the Owning Constituent Entity due to a CFC regime, to be considered in the calculation of the Adjusted Covered Taxes of the Owning Constituent Entity.
The inclusion of Article 47-A enables the Owning Constituent Entity to increase the effective tax rate calculated for the jurisdiction, which may mitigate the need for application of the Additional CSLL.
3. Substance-Based Exclusion
Substance-Based Exclusion is the possibility of deducting certain percentages of the costs of (i) payroll and (ii) tangible assets used in the operations of the Constituent Entity, as established in IN 2.228.
The original wording of IN 2.228 did not specify if third parties could be considered as payroll costs for the purpose of Substance-Based Exclusion.
The new wording given to Article 76, paragraph 5, of IN 2.228 clarifies that Eligible Payroll Costs include “non-employee workers”, thus considered only as individuals, including those who are employed by a manpower supply company and do not include individuals from a contracted company that provides goods or services to the Constituent Entity.
4. Taxable Distribution Method
Article 121 of IN 2.228 allows the Owning Constituent Entity to opt to apply the Taxable Distribution Method on profits originating from Investment Entities (e.g., Investment Funds) when distributed to the Owning Constituent Entity. This option includes in the GloBE Profit of the Owning Constituent Entity only the profit distributions (and not the profit of the Investment Entity itself).
The new wording given to Article 125 of IN 2.228 included the insurance sector as eligible for being framed as an Investment Entity for the purposes of the option provided in Article 121 of IN 2.228.
Additionally, Article 125 of IN 2.228 stipulates that if the option by the Taxable Distribution Method is revoked, the Undistributed GloBE Net Profits by the Investment Entity in the three previous fiscal years will be treated as GloBE Profit in the year of revocation.
5. Transfer of Assets between Constituent Entities
Article 149 of IN 2.228 determines that, when a Constituent Entity transfers assets (except inventory) to another Constituent Entity after December 1, 2021, but before being subject to global minimum tax regimes (IIR, UTPR, or QDMTT), the book value of the assets in the acquiring Entity will be the same book value recorded in the alienating Entity.
The new wording given to paragraph 1 of Article 149 of IN 2.228, which establishes which intra-group transactions and restructurings must be considered for the application of the provisions of the head, includes as intra-group transactions and restructurings the following operations: (i) advanced payment of royalties or rents, (ii) total return swap, where the underlying asset is transferred to the Entity acquiring the rights to income and gains; and (iii) fair value accounting, with recognition of gains or losses and adjustments in book value.
With the approval of Law 15.079 and the absence of progress in the legislative process of MP 1.262 so far, it is possible that MP 1.262 may lose its validity in the coming months.
We will continue to monitor the legislative process of MP 1.262 and are available to resolve any doubts that may arise.
