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The Brazilian Federal Government announced on June 25 the second phase of its proposed comprehensive tax reform, focusing on income tax. The government published the first phase of the proposal in August 2020. The authorities announced at that time that the second phase would be submitted to Congress within one month; one year later, PL 2.337/2021 has been released. If approved, the law is intended to be effective on January 1, 2022. 

This proposal is in addition to the more than 20 tax bills that were already being intensively debated in the National Congress, particularly in the Senate. As such, PL 2337/2021 likely will be revised by Congress, alongside the debate over Brazil’s broader tax reform covering VAT and other consumption-based taxes.

The government’s current proposal for corporate tax reform and/or reintroduction of a dividend withholding tax would significantly increase the Brazilian tax burden on many businesses, particularly on foreign investors.  

Even though the proposal may undergo relevant changes by Congress, companies should assess the possible consequences, and reconsider their corporate structures, value chains, transfer pricing, and financing of their Brazilian operations. Business-led corporate, operational, and/or financial restructuring, within Brazil or internationally, may be needed to address the impacts of the current government proposal.