Brazil Introduces OECD Pillar Two Rules with Provisional Measure

| Image Credits: Brazilian government building "Palácio do Planalto GGFD8938" by Gastão guedes 

These regulations introduce the OECD’s Base Erosion and Profit Shifting (BEPS) Pillar Two rules into Brazil’s tax framework.

The Provisional Measure introduces a Qualified Domestic Minimum Top-up Tax (QDMTT), which is expected to take effect in January 2025, ensuring that profits generated in Brazil are taxed at an effective rate in line with global standards.

KEY ELEMENTS OF THE PROVISIONAL MEASURE

INTRODUCTION OF QDMTT

The QDMTT, introduced through PM No. 1.262, will apply to Brazilian entities that are part of multinational groups with annual revenues exceeding €750 million in at least two of the previous four fiscal years. This tax will act as an additional charge to Brazil’s Social Contribution on Profit (CSLL) and is designed to prevent profit shifting to low-tax jurisdictions. The measure does not cover the Income Inclusion Rule (IIR) or the Undertaxed Payments Rule (UTPR), focusing solely on the QDMTT.

TRANSITIONAL SAFE HARBOR

The Provisional Measure includes a transitional safe harbor period of three years, based on country-by-country reporting (CbCR). This safe harbor will apply to fiscal years commencing on or before December 31, 2026, and ending on or before June 30, 2028. The transitional period is designed to ease the compliance burden for companies adapting to the new rules.

COMPLIANCE AND REPORTING REQUIREMENTS

Companies subject to the QDMTT in Brazil will need to comply with comprehensive reporting obligations. The government is expected to release detailed guidelines for the calculation of this tax, and entities will face substantial fines for delays, inaccuracies, or omissions in their reporting. Normative Instruction No. 2.228 outlines the penalties and the strict deadlines associated with the filing process.

ADDITIONAL TAX MEASURES

CORPORATE INCOME TAX INCENTIVES

The Provisional Measure raises the possibility of converting certain Corporate Income Tax incentives associated with Brazil’s Free Trade Zone into Qualified Refundable Tax Credits for Pillar Two purposes, starting in 2026. This move could allow businesses to take advantage of tax incentives in compliance with the new rules.

REVISITING TAX HAVEN JURISDICTIONS

Brazil may revisit its list of tax havens and privileged tax regimes, potentially excluding jurisdictions that contribute significantly to the country’s national development. While the Provisional Measure does not provide specific details, this change could impact multinational groups with operations in low-tax jurisdictions.

LEGISLATIVE APPROVAL AND NEXT STEPS

The Provisional Measure must be ratified by Congress within 60 days of publication to become law, with the option for a 60-day extension. If Congress does not approve the measure within this timeframe, the PM will expire. 

Translation to English of Provisional Measure (PM) No. 1.262 is Available to Download Here! (PDF) 

SOURCES/ RECOMMENDED READ: 

• MEDIDA PROVISÓRIA nº 1.262, de 3 de OUTUBRO de 2024 - MEDIDA PROVISÓRIA nº 1.262, de 3 de OUTUBRO de 2024 - DOU - Imprensa Nacional (in.gov.br)

• Brazilian Government publishes Provisional Measure introducing OECD Pillar Two rules (ey.com)