Brazils Chamber of Deputies Ratifies Bill to Approve Provisional Measure No. 1,262/2024 to introduce a Domestic Minimum Tax

General

On December 17, 2024, the Chamber of Deputies approved Bill 3817/24 that repeats Provisional Measure No. 1,262, of October 3, 2024, to introduce a Domestic Minimum Tax (DMTT) from January 1, 2025. It will now be sent to the Senate [Update: On December 18, 2024, the Bill was approved by the Senate and will be sent to the President for enactment].

On October 3, 2024, Brazil issued Provisional Measure No. 1,262, of October 3, 2024, to introduce a Domestic Minimum Tax from January 1, 2025. It is designed to meet the requirements of the OECD Model Rules and Administrative Guidance and qualify as a Qualified Domestic Minimum Top-Up Tax (QDMTT) for GloBE purposes.

Normative Instruction No. 2,228, of October 3, 2024 was also issued to provide the detailed rules for the application of the DMTT.

The income inclusion rule (IIR) and under-taxed profits rule (UTPR) are not included.

Whilst Brazilian Provisional Measures are equivalent to Federal Law, they need to be ratified by the Brazilian Congress within 60 days, (extendable for an additional 60 days). If the Provisional Measure is not ratified by Congress, it will become ineffective. 

Bill 3817/24

The Bill repeats the provisions of the Provisional Measure, and as such whilst the Bill provides the broad outline for the operation of the DMT, the details are provided in the Normative Instruction. 

Article 3 of the Bill states that the DMTT has been drafted and will be periodically updated so that it is in line with the reference documents approved by the OECD Inclusive Framework, and its provisions shall be established so that it is a Qualified Domestic Minimum Top-up Tax (QDMTT) for GloBE purposes.

The ‘reference documents’ approved by the OECD are defined as the OECD Model GloBE Rules, the Commentary to the GloBE Rules, the Agreed Administrative Guidelines and other rules, guidelines and procedures, and subsequent updates, approved by the OECD Inclusive Framework.

As such, the Normative Instruction includes most aspects of the first three sets of OECD Administrative Guidance, and most of the provisions of the Model GloBE rules and Commentary are included, subject to the mandatory and optional deviations permitted for a QDMTT.

The Normative Instruction includes the Transitional CbCR Safe Harbour (updated for the December 2023 Administrative Guidance) and the Simplified Calculations Safe Harbour for Non-Material Constituent Entities.

Brazilian DMTT

Key aspects of the Brazilian DMTT include:

Accounting Standard

Article 10 of the Normative Instruction provides that the Net Accounting Profit or Loss is based on the net profit or loss determined for the Constituent Entity in its individual financial statements, in accordance with the applicable accounting standards. These are defined as those adopted by the Constituent Entity to comply with company law issued by the Brazilian authorities.

Currency

Article 11 of the Normative Instruction provides that where all the Constituent Entities in the jurisdiction use the Brazilian Real as their functional currency, the DMTT requires the relevant computations in that local currency.

However, if not all Constituent Entities in the jurisdiction use the Brazilian Real as their functional currency, the Filing Constituent Entity may make a Five-Year Election to undertake the DMTT computations for all Constituent Entities in the jurisdiction either:

– in the presentation currency of the Consolidated Financial Statements; or

– in Brazilian Reals.

Taxes Pushed Down

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Article 47 of the Normative Instruction.

Article 47 also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Brazilian withholding tax on distributions).

Attribution of the QDMTT

Article 70 of the Normative Instruction provides that the DMTT shall be attributed to each Constituent Entity in proportion to the result of the multiplication of its Surplus Profits by the positive difference between fifteen percent and its Effective Rate. If this is not possible, the DMTT will be assigned to Constituent Entities in proportion to their net assets.

However Article 70(4) of the Normative Instruction provides for an election so that the DMTT may be assigned to a single Constituent Entity.

Shareholdings

The Brazilian DMTT expressly applies irrespective of the shareholdings in the group entities located in Brazil. This reflects the OECD Administrative Guidance that provides that Top-up Tax that is subject to the DMTT is based on the whole amount of the jurisdictional Top-up Tax calculated, irrespective of the ownership interests held in the Constituent Entities located in the DMTT jurisdiction by any Parent Entity of the MNE Group.

Filing

Article 153 of the Normative Instruction provides that Constituent Entities must provide all the information necessary for the calculation of the DMTT. However, MNE groups can elect for a single Reporting Constituent Entity. A separate regulation is to be issued for the detailed provisions.

Payment

Article 73 of the Normative Instruction provides that the DMTT must be paid by the Constituent Entities by the last business day of the seventh month following the end of the Fiscal Year.