National Congress Approves Additional CSLL to Adapt to OECD Globe Rules and New Provisions Related to Brazilian Worldwide Taxation System

I – ADDITIONAL CSLL

Following the House of Representatives’ approval just one day before, the Brazilian Federal Senate approved, on December 18, 2024, Bill of Law No. 3,817/2024 (the “bill”), which introduces an Additional Social Contribution on Net Profit (the “Additional CSLL”). The Additional CSLL aims to adapt Brazilian tax legislation to certain standards provided by the OECD Global Anti-Base Erosion (GloBE) Rules under Pillar 2. These rules generally seek to guarantee that the effective corporate income tax rate of large multinational groups (MNE) does not fall below a minimum of 15% in each jurisdiction.

Already approved by the Brazilian National Congress, the bill currently awaits the President’s signature or veto (partial or total), which is expected to occur in the coming days, so the Additional CSLL may - as established in the bill - enter into force as of January 01, 2025.

The Brazilian Federal Revenue Office (RFB) has already issued regulations on the subject—through the Normative Instruction (NI) No. 2,228/2024—that were recently subject to public consultation.

The bill generally reflects the text of the Provisional Measure (PM ) No. 1,262/2024 with some few adjustments. Below, we highlight a few key aspects of the Additional CSLL.

• Scope: The Additional CSLL would apply to Brazilian Constituent Entities of MNE Group that has annual revenues of EUR 750 million or more in its consolidated financial statements in at least two of the four fiscal years immediately preceding the year under analysis.

• Alignment with OECD GloBE Rules: The Additional CSLL is structured to ensure its qualification as a Qualified Domestic Minimum Top-Up Tax (QDMTT). Although the RFB is tasked to issue regulations on several aspects of such imposition, the bill expressly establishes that:

• Reference documents include the Model GloBE Rules, the Commentary to the Model GloBE Rules, Administrative Guidelines, and any other rules, guidelines, procedures, and subsequent updates approved by the OECD Inclusive Framework for the coordinated implementation of effective minimum taxation.

• The regulations must be periodically updated to ensure alignment with the reference documents, and their provisions must be established in a manner that meets the requirements for the qualification of the Additional CSLL as a QDMTT.

• Notwithstanding the above, any update or change to the concepts established in the law and regulations that result in an increase to tax burden will be applied to the fiscal year that begins: (i) in the following year; (ii) 90 (ninety) days after the publication of the update or change.

• The respective definitions will be adopted exclusively for the purposes of the Additional CSLL and are not to be confused with similar terms defined by other laws, whether tax or not, nor may they be used, directly or indirectly, in the interpretation or definition of the same terms when provided for in other laws, except when they expressly refer to the legal provisions that established them.

• Calculation of the Additional CSLL: In summary, the assessment of the Additional CSLL will involve the following steps:

1: Determine for each Constituent Entity:

(a) GloBE Income or Loss: The starting point is the net profit or loss determined for the Constituent Entity in its individual financial statements according to the applicable Brazilian  accounting standards. Subsequently, specific adjustments listed in Annex I and NI RFB No. 2,228/2024 must be implemented.

(b) Adjusted Covered Taxes: The starting point is the current tax expense on income and profits recognized for accounting purposes and adjusted to capture or exclude items depending on whether they fall within their scope, as per Annex II of PM No. 1,262/2024 and NI RFB No. 2,228/2024.

2: Determine the Effective Tax Rate assessed for the Brazilian jurisdiction, using the Adjusted Covered Taxes (the numerator) and the GloBE Income or Losses (the denominator) of all Constituent Entities of the MNE Group located in Brazil.

3: Determine the Additional CSLL Percentage of the Brazilian jurisdiction, which is the positive difference between the minimum rate of 15% and the Effective Tax Rate, as determined in Step 2.

4: Calculate the Excess Profit, which is the positive value of the difference between Net GloBE Income and the Substance-based Income Exclusion. This latter element is the sum of the payroll eligible costs carveout and the carrying value of eligible tangible assets carveout.

5:  Calculate the Additional CSLL for the Brazilian jurisdiction, determined for the fiscal year by multiplying the Additional CSLL Percentage (3) by the Excess Profits (4) and then adding any Adjustment of the Additional CSLL (if applicable).

6: Allocate the Additional CSLL for the jurisdiction among the Constituent Entities in the jurisdiction that have been determined to have Excess Profits, allocating it proportionally according to certain allocation criteria. Alternatively, at the discretion of the MNE Group, the Additional CSLL for the jurisdiction may be allocated to a single Constituent Entity designated as the taxpayer and liable party. In this case, the other Constituent Entities will be jointly liable for the Additional CSLL.

• Payment of the Additional CSLL: The Additional CSLL must be paid by the respective Constituent Entities/Entity by the last business day of the seventh month following the end of the fiscal year, even if they are not taxpayers of the CSLL under Law No. 7,689/1988. The Additional CSLL will be considered unpaid if it is, directly or indirectly, the subject of judicial or administrative litigation and may not be used as credit in the application of the GloBE Rules by the MNE Group under any circumstances, fiscal year, or jurisdiction.

• Tax Incentives Related to the Areas of Activity of the Amazon Development Authority (SUDAM) and the Northeast Development Authority (SUDENE): Starting in 2026, the Executive Branch will be authorized to convert—in whole or in part, and without prejudice to the beneficiary—the tax incentives referred to in Articles 1 and 3 of PM No. 2,199-14/2001, into a financial credit classified as a Qualified Refundable Tax Credit.

Note: The prior proposal, under PM No. 1,262/2024, established that this credit should include substance-based requirements adopted in the calculation of the Substance-based Income Exclusion. However, that provision was repealed by the National Congress.

• GloBE Safe Harbors: NI RFB n. 2,228/2024 establishes some simplifying rules that can be adopted if the Constituent Entities located in Brazil are considered eligible and that may allow the Additional CSLL for the jurisdiction to be considered zero in a given fiscal year (e.g., Transitional Country-by-Country Report Safe Harbor; Permanent Safe Harbor based on the excess profit, low relevance jurisdiction, or effective tax rate tests; and Permanent Safe Harbor for non-material Constituent Entities).

II – BRAZILIAN WORLDWIDE TAXATION SYSTEM

The bill also addresses some important aspects regarding the Brazilian worldwide taxation system (“TBU”), notably:

• Exceptional waiver of a blacklisted or greylisted qualification (derived exclusively from the non-taxation of income at the maximum rate of 17%) for jurisdictions that significantly promote national development through significant investments in Brazil.

• Revocation of the rules applicable to the qualified low-taxation regime, notably those that imposed income tax on profits of foreign entities at a nominal rate of less than 20%.

• Extension of the consolidation regime and the presumed credit of 9% until the fiscal year 2029.

• Possible deduction in Brazil of the GloBE taxes paid abroad by the direct or indirect controlling entity. (Note: The determination of the amount paid must comply with the regulations to be issued by the RFB.)

• Requirement that the Executive Branch submit to the National Congress, during the first half of the 2025 fiscal year, a legislative proposal to reform the current TBU rules by introducing:

(i) The Income Inclusion Rule (IIR) in accordance with the OECD Pillar Two guidelines; and

(ii) A new CFC regime. (Note: Brazil's current regime is broader than that adopted in the international context. This is because Brazil's current regime encompasses the foreign entity's income regardless of its nature (active or passive) or the identification of abusive tax planning. Therefore, in principle, it is expected that the new CFC regime would seek greater alignment with international standards.)