Since 2012, under the leadership of the Organization for Economic Co-operation and Development (“OECD”) and the Group of Twenty (“G20”), a global tax reform has been initiated with the aim of redistributing the taxing rights over the profits and transactions of multinational companies, known as the BEPS Project (Base Erosion and Profit Shifting). Brazil, since the beginning of this project, has positioned itself favorably towards the proposed measures. After 2015, several other countries adhered to BEPS, culminating in the creation of an unprecedented global tax governance structure, called the “Inclusive Framework.”
Through the Inclusive Framework, the OECD developed the so-called “Unified Approach” to the taxation of multinationals, based on two pillars. Pillar 1 aims to ensure greater revenue for the “Market Country,” where sales occur. Pillar 2 establishes a global minimum taxation with a 15% rate on the profits of multinational groups with global annual revenues exceeding 750 million euros. This second pillar introduces the Global Anti-Base Erosion (“GloBE”) rule, which imposes mechanisms to ensure that taxes are levied on profits, preventing companies from shifting profits to low-tax jurisdictions and thus ensuring the payment of the established minimum tax.
The purpose of these measures is to encourage all countries to adapt their corporate tax rules to prevent the erosion of their tax bases and the loss of revenue to other jurisdictions.
As part of this movement to adapt to international law and the GloBE rules, Brazil issued Provisional Measure (“MP”) nº 1,262/2024, published on October 3, 2024. This MP establishes an Additional Social Contribution on Net Income (“CSLL”), applicable to multinational groups that have consolidated annual revenues equal to or greater than 750 million euros in at least two of the four fiscal years preceding the year in question(1). The measure aims to combat profit shifting to low or no-tax jurisdictions, preserving revenue in the countries where economic value is effectively generated, and ensuring that multinationals are taxed at a minimum rate of 15%(2).
The rules establish that the positive difference between the minimum rate of 15% and the effective rate (calculated according to the GloBE rules) of subsidiaries in a given jurisdiction will be taxed in the jurisdiction of the entity that has generated excess profits in the fiscal year(3).
In general terms, the effective rate is calculated based on the division between each entity’s adjusted taxes and net income or loss, which is subject to specific adjustments, excluding incomes or profits that should not form part of the global tax base(4). Thus, regardless of tax incentives or exemptions granted by different jurisdictions, multinationals will be subject to a minimum taxation of 15%.
According to the MP, the adjusted taxes of each entity are those levied on income or profits(5), a concept introduced by Pillar 2 as “covered taxes,” which corresponds to any taxes on an entity’s income or profits, subject to adjustments for determining the final adjusted rate.
The MP also includes transitional rules, such as substance-based profit exclusion, allowing for partial exclusion of taxable profits based on two main components: payroll and tangible assets(6). This ensures that taxation is levied only on profits effectively linked to the economic substance generated by the company, preventing double taxation.
Additionally, the MP establishes that multinational groups must provide the Brazilian Federal Revenue with all necessary information for the correct calculation of the Additional CSLL, under penalty of fines in case of omission, inaccuracy, errors, or failure to provide the required information(7).
It is important to note that Article 3 of MP nº 1,262/2024 delegates to the Special Secretariat of the Brazilian Federal Revenue the authority to regulate various practical and technical aspects of the application of the Additional CSLL(8), which was done through RFB Normative Instruction nº 2,228/2024, also published on October 3, 2024. The Normative Instruction addresses, among other topics, the procedures for converting foreign currencies, definitions of essential terms for calculation, adjustments in the determination of net accounting profit or loss for the fiscal year, allocation of profits and taxes among entities in a multinational group, and transitional safe harbor rules.
MP nº 1,262/2024 takes effect from its publication on October 3, 2024. However, the main provisions imposing the minimum rate of 15% will apply from January 1, 2025(9). Thus, taxpayers will have a period to adapt to the new rules, ensuring compliance with the criteria established for the calculation of the Additional CSLL.
