Surprising decision by CARF: Brazilian withholding tax levied on fund income is canceled

The Administrative Council for Tax Appeals (CARF) recently made a surprise decision to cancel a Withholding Income Tax (IRRF) charge on fund income. This decision could bring significant changes for investors and financial managers.

The Withholding Income Tax rate applied to income sent to foreign shareholders of Equity Investment Funds (FIP) was 35%.

There is a rule for exemption from Withholding Income Tax (IRRF). However, in this scenario, the IRS interpreted that there was a practice of abusive tax planning, as the final beneficiaries (individuals) of the amounts redeemed were not identified.

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The citizen should have been subject to the provisions of Article 3 of Law No. 11,312 of 2006. This clause provides for complete exemption from the Withholding Income Tax (IRRF) rate on gains from investments in Equity Investment Funds paid to a beneficiary resident or domiciled abroad.

The provision establishes certain criteria for obtaining the benefit, including the condition that the beneficiary is not located in a tax haven jurisdiction. If these requirements are not met, the standard rate of 15% is normally applied.

Written by Marcos Ferreira, Content Assistant at Drummond Advisors

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