{"id":93227,"date":"2025-03-06T22:08:43","date_gmt":"2025-03-07T01:08:43","guid":{"rendered":"https:\/\/murray.adv.br\/?p=93227"},"modified":"2025-03-06T22:08:46","modified_gmt":"2025-03-07T01:08:46","slug":"brazil-may-align-dividend-taxation-with-oecd-model","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/brazil-may-align-dividend-taxation-with-oecd-model\/","title":{"rendered":"Brazil may align dividend taxation with OECD model"},"content":{"rendered":"\n
Government considers an approach that combines corporate and dividend taxes as it discusses income tax reform and an increase in the exemption threshold<\/em><\/strong><\/h6>\n\n\n\n

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03\/06\/2025 <\/p>\n\n\n\n

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The Brazilian government plans to implement income tax on dividends based on a model used by the Organization for Economic Cooperation and Development (OECD), a member of the economic team told Valor. In this approach, taxes paid by the company and those levied on dividends are considered together.<\/p>\n\n\n\n

This measure is part of the broader income tax reform the government intends to submit to Congress soon. The centerpiece of the proposal is raising the personal income tax exemption threshold to R$5,000.<\/p>\n\n\n\n

This increase would lead to a revenue loss of approximately R$35 billion, which the government aims to offset by introducing a minimum tax rate of up to 10% for individuals earning more than R$50,000 per month\u2014covering all types of income, including dividends.<\/p>\n\n\n\n

\u201cIt is very common for countries to assess taxation collectively, considering both the entity paying the income (the company) and the recipient (the shareholder),\u201d the source said. \u201cIt makes sense.\u201d<\/p>\n\n\n\n

In Brazil, individuals with higher incomes pay relatively little tax as individuals compared to salaried workers, who are taxed at the source, the official noted. However, corporate taxation must be taken into account. When both are considered, the tax burden on the wealthy is not as low as it may seem.<\/p>\n\n\n\n

To understand how the OECD applies taxes on dividends, Valor consulted tax experts.<\/p>\n\n\n\n

\u201cThere are several possible models,\u201d said Daniel Loria, a partner at Loria Advogados and former director at the Secretariat for Tax Reform. He said he was unsure how Brazil\u2019s tax authority would integrate OECD rules into the income tax reform.<\/p>\n\n\n\n

Generally, he explained, countries tax dividend distributions but grant tax credits for corporate taxes already paid. If applied in Brazil, this model could mean dividends would be taxed at up to 27.5% under the individual income tax (IRPF) table, but with a tax credit corresponding to the corporate income tax (IRPJ) and Social Contribution on Net Profit (CSLL) paid by the company.<\/p>\n\n\n\n

However, OECD countries have increasingly abandoned this tax credit model in favor of a split-rate system, said Helena Trentini, a tax lawyer who previously worked at the OECD and is now a partner at Heleno Torres Advogados.<\/p>\n\n\n\n

In Ireland, for example, corporate profits are taxed at 12%, while dividends face a 51% tax rate. Lithuania employs a more balanced approach, with 15% taxation on both corporate profits and dividends.<\/p>\n\n\n\n

Ms. Trentini said the goal in many countries is to reduce corporate income tax rates to encourage economic activity.<\/p>\n\n\n\n

She noted that, in Brazil, the discussion is happening in a context where the government is seeking to increase tax revenue to offset losses from raising the exemption threshold. The risk, she warned, is that the reform could end up only imposing taxes on dividends without following the global trend of lowering corporate income tax.<\/p>\n\n\n\n

Currently, corporate income in Brazil is taxed at 34%, considering both IRPJ and CSLL. \u201cThat\u2019s very high,\u201d she said. By comparison, the U.S., the U.K., and the Netherlands levy corporate taxes at 25%.<\/p>\n\n\n\n

\u201cIf you add dividend taxation to the existing 34% corporate tax rate, the result would be a completely distorted tax burden\u2014one that does not exist in any other country,\u201d Ms. Trentini warned.<\/p>\n\n\n\n

The fiscal impact of the proposed changes remains uncertain, she added. \u201cIt\u2019s unclear how much revenue could be generated from dividend taxation, as many companies may simply stop distributing them.\u201d<\/p>\n\n\n\n

Longstanding tax structure<\/strong><\/p>\n\n\n\n

Ms. Trentini explained that Brazil\u2019s high corporate tax rate is rooted in a 1995 reform that merged dividend taxation with corporate income tax. This change was made to simplify tax enforcement by concentrating taxation at the corporate level, leaving dividends exempt.<\/p>\n\n\n\n

Because of this, experts argue that dividends in Brazil are not truly exempt, as is often claimed. \u201cThat\u2019s a lie,\u201d said Tiago Conde Teixeira, a partner at law firm SCMD Advogados. \u201cDividends are taxed, just at the corporate level.\u201d<\/p>\n\n\n\n

In his view, the government\u2019s plan to tax dividends at the individual level amounts to double taxation\u2014applying the same tax to the same income twice. \u201cThat is unconstitutional,\u201d he said.<\/p>\n\n\n\n

The OECD\u2019s split-rate system offers more incentives for reinvestment than Brazil\u2019s current model, Ms. Trentini said. Currently, from a tax perspective, there is no difference between using profits to expand a business or distributing them as dividends, since the entire amount is taxed at 34% upfront.<\/p>\n\n\n\n

Under a split-rate system, however, corporate tax rates would be lower, encouraging reinvestment.<\/p>\n\n\n\n

For example, if a company earns R$100 in profit and faces a 25% corporate tax rate, it would pay R$25 in taxes, leaving R$75. If the company reinvests the R$75, no additional tax is levied. If, instead, it distributes the amount as dividends, an additional tax\u2014around 15%\u2014would apply.<\/p>\n\n\n\n

This approach ensures more funds remain available for reinvestment, free from further taxation, while dividend distributions would be subject to additional taxes.<\/p>\n\n\n\n

Raising the IRPF exemption threshold to R$5,000 poses a risk to public finances, according to experts, as the outcome of congressional debates is uncertain. Lawmakers have already voiced opposition to tax hikes, even for high-income earners. If the proposed revenue offsets fail to materialize, the expected tax shortfall may not be fully compensated, contrary to what Finance Minister Fernando Haddad has argued.<\/p>\n\n\n\n

Beyond fiscal concerns, the new exemption threshold could also clash with the Central Bank\u2019s inflation-control strategy.<\/p>\n\n\n\n

Rafaela Vit\u00f3ria, chief economist at Banco Inter, said that in today\u2019s tight labor market, the increased disposable income from tax cuts would drive up middle-class consumption, potentially fueling inflation. \u201cFor 2026, however, it\u2019s still too early to predict, as it will depend on how economic activity and job creation evolve throughout the year,\u201d she noted.<\/p>\n\n\n\n

\u201cIncreasing spending, whether through greater transfers or income tax cuts, in an economy already near full capacity won\u2019t lead to growth\u2014only more inflation,\u201d she said.<\/p>\n\n\n\n

Felipe Salto, partner and chief economist at Warren Rena, argued that even with fiscal neutrality, the overall impact on economic demand would likely be positive, putting upward pressure on inflation.<\/p>\n\n\n\n

That\u2019s because, he explained, even if the government finds ways to fully offset lost revenue, the burden of new taxation may fall primarily on wealthier segments of the population.<\/p>\n\n\n\n

*By\u00a0Lu Aiko Otta e\u00a0Guilherme Pimenta\u00a0\u2014 Bras\u00edlia<\/p>\n\n\n\n

Source: Valor International<\/p>\n\n\n\n

\nhttps:\/\/valorinternational.globo.com\/\n<\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"

Government considers an approach that combines corporate and dividend taxes as it discusses income tax reform and an increase in the exemption threshold 03\/06\/2025 The Brazilian government plans to implement income tax on dividends based on a model used by the Organization for Economic Cooperation and Development (OECD), a member of the economic team told […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[25924,25925],"class_list":["post-93227","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-brazil-may-align-dividend-taxation","tag-oecd-model"],"yoast_head":"\nBrazil may align dividend taxation with OECD model - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/brazil-may-align-dividend-taxation-with-oecd-model\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brazil may align dividend taxation with OECD model - 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