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The taxation of profits earned abroad by subsidiaries and associated companies is a matter of extraordinary importance as it reaches several companies based in Brazil that have subsidiaries or associated corporations headquartered abroad.

This topic has been widely discussed and gained momentum with the publication of the law number 12,973/14 and with the recent decision enunciated by the First Chamber of the Superior Court, which dismissed the application of the article number 74 of the Provisional Measure number 2158-35/01, determining that international treaties shall prevail.

Note that part of the subject matter involved in the case has already been considered by the Supreme Court in the trial of Adin. 2588, which was for the constitutionality of the taxation of profits of subsidiaries and associated companies based in tax haven.

Importantly, the decision of the Superior Court of Justice has not yet become final, and the Attorney General of the National Treasury has announced it will resort to the Supreme Court.

Now, in the case of the prevalence of the understanding exposed by the First Chamber of the Superior Court of Justice, the question to be discussed is the applicability of the situation of the law number 12,973/14.

It is explained. The Article number 77 of the statute above makes reference to "portion of the investment value adjustment in controlled, directly or indirectly, domiciled abroad equivalent to the profits which it earned before income tax" and not "profits earned by subsidiaries or affiliates in outside" as provided in the article number 74 of Provisional Measure number 2158-35/01.

Note that both deal with the taxation of profits earned by subsidiaries and affiliates of Brazilian companies located abroad and the change of expression does not even brought change in the tax rule of the species, and for this reason we conclude that it is perfectly applicable understanding espoused by the Superior Court of Justice on the subject in the context of the law number 12,973/14.

Author: Thais Mesquita

Source: Fenacon



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