Brazil adopts OECD Pillar 2 principles

Pillar 2 - Additional CSLL – MP 1.262/24 and IN 2.228/24
Brazil formally adopted OECD Pillar 2 principles into its domestic tax legislation with the issuance of Provisional Measure No. 1,262/24 and Normative Instruction No. 2,228/24 on October 3, 2024. This measure aligns Brazil with international minimum taxation standards established by the OECD and G20 to address base erosion and profit shifting (BEPS).

The Pillar 2 rules aim to ensure that multinational companies are subject to an effective minimum tax rate of 15% on their global profits, preventing the allocation of profits to low-tax jurisdictions.

The Provisional Measure foresees a Qualified Domestic Minimum Top-Up Tax (QDMTT), by establishing an additional CSLL that would be applied on excess profits.

QDMTT calculation requires careful consideration to the new concepts introduced in Brazil such as “GloBE Net Income”, “Adjusted Covered Taxes” and “Profits Based on Substance” which are estimated on a percentage on tangible assets and payroll expenses. These concepts involve complex detailed calculations and are applied to the jurisdiction.

Internal discussions are ongoing regarding the impacts of tax incentives, goodwill amortization and other benefits that reduce the effective tax rate.

The rules apply to Entities of a Multinational Group with annual revenue exceeding €750 million in the Ultimate Parent Entity’s consolidated financial statements for at least two of the four prior fiscal years.

Legislation imposes significant penalties for delays, errors, and inaccuracies in the submitted information to Federal Revenue Service. The requirements for the ancillary obligations and the manner in which companies should report this information have not yet been established by the Brazilian Tax Authority.

Safe harbor criteria were also established based on Minimum Revenues, Simplified Effective Tax Rate and Substance-Based Exclusion.

The application will be effective in January 2025 and payments due in July 2026.

The Additional CSLL can be paid by proportional attribution to Brazilian entities based on the Additional of CSLL; or proportional attribution based on respective equity values; or single entity collection with joint liability among constituent entities.

The Provisional Measure must be converted into law within 120 days.