Post by account_disabled on Mar 13, 2024 4:06:28 GMT -5
Due to this conceptual disarray there is the potential for overtaxation undertaxation and double taxation by fictitious multiplication of the total undistributed profits as the case may be. Hence therefore the need for a restrictive interpretation of the term “participation” in article of Law No. as a function of the profits that would be received in a hypothetical distribution.
Although Law No. agreed on the proportional inclusion rule it failed to expressly prevent overlapping of the application of CFC-PF rules and CFC-PJ rules. This is because both of these normative subsystems promote an individual approach to entities abroad entity approach that is each direct and indirect entity is treated autonomously CG Leads without combining tax attributes of entities located in the same jurisdiction jurisdictional approachblending . or at a global level worldwide approachblending .
Thus in the situation in which an individual who is a tax resident in Brazil has control over a legal entity also a tax resident in Brazil which in turn has direct control over the entity abroad there would be an overlap: due to the literalness of each diploma the rules CFC-PF would apply due to indirect control. Logically the best interpretation is never merely literal especially when it generates double taxation.
In systematic interpretation it must be concluded that the first level of control in Brazil that is the first tax resident in Brazil who has control over the foreign entity in a “bottom-up” analysis determines which subsystem should be applied. If you are an individual the CFC-PF rules apply; if it is a legal entity the CFC-PJ Rules apply.
Note that clarification expressed in this sense could have easily been confirmed by Law No. . After all article of Law No. itself determines expungement in case of overlap of CFC-PJ rules with transfer pricing and thin capitalization rules. Therefore a short-worded provision providing application preference according to the case was sufficient which is expected to be provided for at an infra-legal level.
Without prejudice to the above some considerations regarding the crediting of foreign tax under article of the CFC-PF rules are still relevant. This device would also deserve an exhaustive study of its own but in short it provides for the crediting in Brazil of the tax eventually charged by the controlled company's jurisdiction of residence on the latter's profits corporate income tax . Correlatedly any withholding tax required by the controlled company's jurisdiction of residence when paying dividends is not creditable in Brazil an effect that is consistent with the exemption of qualified dividends under article previously taxed income.
Although Law No. agreed on the proportional inclusion rule it failed to expressly prevent overlapping of the application of CFC-PF rules and CFC-PJ rules. This is because both of these normative subsystems promote an individual approach to entities abroad entity approach that is each direct and indirect entity is treated autonomously CG Leads without combining tax attributes of entities located in the same jurisdiction jurisdictional approachblending . or at a global level worldwide approachblending .
Thus in the situation in which an individual who is a tax resident in Brazil has control over a legal entity also a tax resident in Brazil which in turn has direct control over the entity abroad there would be an overlap: due to the literalness of each diploma the rules CFC-PF would apply due to indirect control. Logically the best interpretation is never merely literal especially when it generates double taxation.
In systematic interpretation it must be concluded that the first level of control in Brazil that is the first tax resident in Brazil who has control over the foreign entity in a “bottom-up” analysis determines which subsystem should be applied. If you are an individual the CFC-PF rules apply; if it is a legal entity the CFC-PJ Rules apply.
Note that clarification expressed in this sense could have easily been confirmed by Law No. . After all article of Law No. itself determines expungement in case of overlap of CFC-PJ rules with transfer pricing and thin capitalization rules. Therefore a short-worded provision providing application preference according to the case was sufficient which is expected to be provided for at an infra-legal level.
Without prejudice to the above some considerations regarding the crediting of foreign tax under article of the CFC-PF rules are still relevant. This device would also deserve an exhaustive study of its own but in short it provides for the crediting in Brazil of the tax eventually charged by the controlled company's jurisdiction of residence on the latter's profits corporate income tax . Correlatedly any withholding tax required by the controlled company's jurisdiction of residence when paying dividends is not creditable in Brazil an effect that is consistent with the exemption of qualified dividends under article previously taxed income.