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Federal Revenue Service publishes new Income Tax position on positive exchange variation on deposits in accounts abroad

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Starting on the 1st of July 2021, all fiscal auditors for Brazil’s Federal Revenue (“RFB”) began to follow the new position set out in COSIT Consultation Solution No. 115/2021 (“SC”) regarding the exemption from Income Tax (“IR”) on gains arising from exchange variation on deposits from accounts held abroad.

From what was laid out, the positive exchange variation shall be subject to the Brazilian rates applicable to the capital gain, which vary from 15% to 22.5%, and taxation will occur when the funds held abroad are transferred to Brazil.

Such accounts, according to SC, can be remunerated or not. With this, it is possible to say that amounts deposited in checking accounts abroad may be subject to the expected taxation, even if there is no income from interest at all. In other words, even if the deposit from abroad does not yield anything, the mere positive exchange variation will be considered an income increase for Brazilian tax purposes.

In the SC case, the Consultant had funds originally obtained in Brazilian reais and transferred the amounts to an unpaid checking account abroadon a regular basis, that is, with the intervention of the financial institution.

After a period, he asked the foreign bank to return the funds to Brazil in US dollars, clarifying that, as it was an unpaid account, there would be no income increase in foreign currency to justify taxation as income tax in Brazil.

Pursuant to article 11 of the Normative Instruction (“IN”) SRF No. 118/2,000, taxpayers must update the balance in reais held abroad in their income tax return, annually, considered as conversion to the price fixed for purchase, by the Central Bank, for December 31 of each calendar year.

Note that Article 11 of the IN itself, in its 1st paragraph, allows an exemption from the income increase from the exchange variation that occurred during the calendar year.

However, the RFB’s conclusion in the recent SC is that such exemption is restricted to what Law No. 9,250/95 establishes in its paragraph 4, of article 25. This means that only amounts resulting from exchange variation calculated up to December 31st of the calendar year preceding the transfer are exempt from income tax.

It is worth noting that, despite the SC’s understanding, it is binding for the purposes of inspection by the RFB and, if it is not observed by the taxpayers, it may lead to assessments.

It is interesting to note that in similar cases, taxpayers may benefit from the exemption related to small value goods, whose current limit is R$35,000.00 (thirty-five thousand reais) for goods located abroad.


Written by Camila Cabral, Tax Consultant at Drummond Advisors