Brazil introduces Pillar 2 concepts of OECD’s GloBE rules into its tax legislation

On October 3, 2024, Brazil formally introduced certain concepts within Pillar 2 of the GloBE rules into its tax legislation via Provisional Measure No. 1,262/2024 and Instruction No. 2,228/2024. Pillar 2 seeks to ensure multinationals are subject to an effective minimum tax rate on their global profits, therefore rendering tax planning strategies that shift profits to low-tax jurisdictions ineffective.

This initiative brings Brazil in line with international minimum taxation standards established by the Organization for Economic Cooperation and Development (OECD) and the G20, which aim to tackle base erosion and profit shifting (BEPS). The new rules ensure the profits of multinationals with consolidated annual revenues of at least EUR 750 million in two of the last four fiscal years are taxed at a rate of at least 15%, irrespective of where they are generated.

QMDTT analysis and other important points

Provisional Measure No. 1,262/2024 provides for a Qualified Domestic Minimum Top-Up Tax (QDMTT), which takes the form of a Social Contribution on Net Profit (CSLL) surtax. Companies affected by the new rules must follow a detailed process to determine their surtax rate, which is levied on excess profits.

In Brazil, several factors can impact whether the 15% minimum tax rate is actually applied as such. These factors, which include SUDAM/SUDENE tax incentives, goodwill amortization, tax loss calculation, and incentives stemming from Law No. 11,196/2005 (Lei do Bem), must be given due attention and evaluated in detail.

The new provisional measure establishes requirements for companies to submit detailed information and provides for significant fines for delays, errors, and inaccuracies. Moreover, the rules for taxing foreign profits (CFCs) have not changed, yet there is an expectation that these will eventually be reviewed and aligned with the GloBE rules.

Provisional Measure No. 1,262/2024 still needs to go through the standard conversion process in the Brazilian Senate within 120 days to become a permanent law.

Exclusive publication

In light of this development, Mattos Filho’s tax experts have released an exclusive publication outlining the main points of the new rules. These rules apply from January 2025, with payments commencing from July 2026.

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