Right to tax credits for data security compliance expenses granted

An unprecedented Federal Court decision has granted a request concerning the use of PIS (Contribution to the Social Integration Program) and Cofins (Contribution to Social Security Financing) tax credits arising from expenses incurred in complying with Brazil’s General Data Protection Law (LGPD).

As per Article 3, item II of Laws No. 10,637/2002 and 10,833/200, it was also determined that such expenses should be classified as ‘relevant and essential’.

This decision follows a leading case from 2018 (Special Appeal No. 1,221,170) that saw the Superior Court of Justice (STJ) define expenses incurred in meeting legal obligations as ‘relevant or essential to the taxpayer’s economic activities’. Furthermore, the court indicated these expenses must be defined as such for the purpose of using PIS/Cofins tax credits, as disregarding them could potentially make conducting business unfeasible.

According to the STJ’s definitions, a 9.25% tax credit would therefore apply to mandatory expenses incurred by taxpayers in complying with the LGPD.

This precedent opens up the possibility of companies recovering costs arising from LGPD compliance after identifying and evaluating expenses incurred.

For further information, please contact Mattos Filho’s Tax practice area.