Lei 9249/95 impossibilidade de compensação de perdas de coligada no exterior

 

 

Brazil

 

 

Report from our correspondent Bruno Carramaschi, Lobo & de Rizzo Advogados, São Paulo

 

 

Superior Court of Justice rules on impossibility of setting off tax losses of foreign controlled and affiliated companies against taxable profit in Brazil

 

 

The Superior Court of Justice (Superior Tribunal de Justiça – STJ) in the session held on 27 September 2011, within the case records of Special Appeal n. 1161003 filed by Marcopolo S/A against the Federal Treasury, ruled on the question of the impossibility of offsetting tax losses of foreign controlled and affiliated companies against taxable profits of the parent company in Brazil.

 

 

(a) Background. Law 9,249/1995 determines that profits accrued by foreign controlled and affiliated companies of Brazilian companies are taxable in Brazil. When imposing this obligation, Law 9,249/1995 expressly provided that potential tax losses resulting from activities carried out by these foreign entities could not be offset against the taxable profits of the parent company in Brazil.

 

 

Subsequently, Provisional Measure 2,158/2001 (PM 2,158) anticipated the timing for recognition and taxation of foreign profits earned by foreign controlled or affiliated companies to the end of the same calendar year in which they are accrued in the balance sheet of the foreign companies, regardless of their actual distribution to the Brazilian parent company.

 

 

PM 2,158 was silent vis-à-vis the impossibility of offsetting tax losses incurred by foreign controlled and affiliated companies against the taxable profits of the parent company in Brazil. Therefore, Marcopolo S/A has argued that PM 2,158 has actually revoked the prohibition set forth by Law 9,249/1995 and, from that moment on, the offsetting would be allowed.

 

 

(b) Decision. The Justices of the Superior Court of Justice, in a unanimous decision, ruled that tax losses of foreign controlled and affiliated companies cannot be offset against the taxable profits of their parent company in Brazil. This reasoning was based on the argument that this would provide a double advantage to the Brazilian company, given that these tax losses could be used to offset the profits to be generated by the same foreign controlled and affiliated companies in the following tax years.

 

 

Furthermore, the Justices understood that PM 2,158 has not revoked the prohibition set forth by Law 9,249/1995 in that regard and, therefore, the provisions brought by the latter are still applicable.

 

 

Note. It is expected that Marcopolo S/A files an Appeal against this decision before the Brazilian Supreme Court (Supremo Tribunal Federal – STF).

 

 

Reference: CTS:BR:1.5.1., 6.1.1.; CTA:BR:1.8.1., 7.2.2.

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