Strategic Research Sponsor of the American Bar Association's Section of International LawThe Queen's Award for Enterpise 2012

Brazil: Corporate Tax Review 2016

Brief Comments on Tax Planning in Brazil

By Igor Nascimento de Souza of Madrona Advogados


The topic of tax planning is intrinsically tied to taxpayers’ desire to improve the efficiency of their economic activities in order to reduce costs and maximise their earnings. In a high-tax jurisdiction such as Brazil, tax planning is essential for any taxpayer wishing to remain competitive.

Conduct related to tax planning does not consist solely of suppressing the amount of tax payable, but also of reducing the tax due or deferring its payment. Although this practice is not new, many controversies surrounding this topic still arise.

This article will briefly discuss the relevant criteria for tax planning to be considered valid in Brazil, according to the most recent Brazilian case laws and doctrine.

Historically, legislation and the Brazilian authorities would guarantee taxpayers the right to structure their operations in the most effective manner, from a tax standpoint, provided that these operations were within the legal limits – even if such acts were performed exclusively for tax planning purposes. The exercise of this right was dealt with as a matter of tax avoidance, defined as the use of legal and legitimate procedures to avoid the occurrence of taxable events. This is the opposite of tax evasion, which consists, in principle, of the practice of unlawful acts in order to obtain the mentioned economy. This was the consolidated position of the case laws of the Superior Chamber of Tax Appeals, the highest administrative court of federal tax cases.

However, starting from early 2000 considerable changes occurred to shift this position. On 10 January 2001, the Complementary Law (LC) No. 104 was enacted, which included a sole paragraph in article 116 of the National Tax Code (CTN) introducing a provision in the Brazilian legal system that intended to fight the evasion of taxes in Brazil.

According to the Brazilian tax authorities, the aim of such a provision was to authorise them to challenge acts practised by taxpayers that had been performed with the sole purpose of avoiding or minimising the tax charge in their transactions, even if such acts were compliant with the legislation in force.

However, since article 116 of the CTN has not yet been regulated through statute law, it may not be applied by the tax authorities. As the provision itself states, “the procedures to be set in statutory law are to be observed.”

Nevertheless, even without this regulation, there was a shift in the discussions proposed by the Brazilian doctrine and administrative tax case laws regarding the organisation of a business for tax purposes.

At the beginning, the criteria used to oppose certain business transactions fell under the description of “negative limits to tax planning”. New criteria are being created, under the category of “positive limits to tax planning”.

Limits to Freedom of Organisation and Tax Planning

The main focus of the analysis of the limits of tax planning lies on the lawfulness or not of the act; in principle, there will only be sustainable tax planning where all the acts practised by the taxpayer are lawful. However, developments caused some acts to be considered lawful for all legal purposes, and they cannot be opposed by the tax authorities.

In this regard, the doctrine posits tax planning limits as negative limits, which should not be part of the ideal system; and as positive limits, which should be combined with other practices in tax planning.

Negative Limits to Tax planning: Typical Unlawful Acts

There is a penalty for typical unlawful acts constituting a   wilful action or omission – including fraud (provided for in article 72 of Law No. 4,502/64) and evasion (provided for in article 71 of the same law).

Such actions may be practised by one taxpayer, or in collusion with others, as set forth in article 73 of Law No. 4,502/64.

Negative Limits to Tax Planning: Atypical Unlawful Acts

In addition to atypical unlawful acts, there is a second class of acts that may adversely affect tax planning: denominated atypical unlawful acts. Unlike the typical unlawful acts, such acts are presented as lawful legal transactions but have defects that may lead to their invalidity. Their effects may not be opposed by the tax authorities.

As a rule, doctrine distinguishes three types of atypical unlawful acts:

a simulation;

a fraud against the law (different from the crime of fraud provided for in article 72 of Law No. 4,502/64); and

abuse of right.


One of the most important limits to tax planning is simulation. Its regulation in private law is found in article 167 of the Brazilian Civil Code. Such a provision establishes simulation as a clause of nullity of the legal transaction.

Simulation derives from an agreement between the parties (simulated pact) for the creation of a legal relationship between them, whereby they convey to third parties of good faith the appearance of a legitimate and legal transaction. However, said transaction is only used in order to be presented to third parties and aims to conceal a separate legal transaction, or to create a fictitious one.

Simulation may be divided into two groups: objective simulations and subjective simulations. In the first case, the legal transaction entered into is taken into account; in the second, the parties involved in the transaction are taken into account.

Objective simulation may be subdivided into relative simulation and absolute simulation. In the first instance, parties present one legal transaction to third parties, but in fact they perform another, quite different one; in the absolute simulation, the parties simulate the performance of a given legal transaction, without in fact carrying it out. It is thus a fictitious act.

In the subjective simulation, the apparent transaction presents holders of rights and obligations that are different from those in the actual transactions, concealed by simulation.

Therefore, in the simulation, we have apparently valid legal transactions. However, in the case that such transactions lead to the non-payment of taxes, they may be disregarded by the tax authorities; this means that the tax effect of an apparently valid transaction will be that it may not be opposed by the tax authorities.

Thus, should the taxpayers carry out simulations in order to present the tax authorities with less burdensome legal transactions, from a tax standpoint, what we have is an unlawful act and not sustainable tax planning. This is the first limit arising from atypical unlawful acts.

Abuse of right

The application of abuse of right for the purposes of tax planning control is still widely challenged in Brazil. However, it is being introduced by doctrine on the basis that such an application derives from developments in Brazil, and from an implied shift in the understanding of taxation.

According to this new view, there is a need to adopt new criteria in order to analyse the legitimacy of transactions performed by the taxpayers. As a result of such new criteria, there would be a general inclusive rule stemming from the application of the principles of social solidarity and contribution capacity, which would imply the taxation of facts not comprised by a tax levy event.

Thus, abuse of right will exist when a lawful legal transaction implies a distortion in the balance of the relationship between the parties, deriving from either: the use of a power or right having a different purpose from that which the legal system provides for its existence; or a functional distortion that has the effect of inhibiting the impact of a law imposed on the event, without sufficient reason.

Accordingly, abuse of right would apply to tax planning when the sole purpose of a less burdensome legal transaction is tax saving. The reason for this is that tax authorities could apply the principles of contribution capacity and social solidarity with the purpose of reclassifying the practised acts, taxing them in a more burdensome way.

Thus, to demonstrate the absence of abuse of right, taxpayers would have to state a reason that is not predominantly tax-related for the performance of their transactions. It is recognised that the intention of saving taxes is lawful, but not sufficient for the validity of the tax planning. To be valid, other reasons are needed to carry out the transaction.

It is worth noting that other renowned Brazilian practitioners find it difficult to apply this structure for tax purposes, since characterising the abuse of right is necessary to prove the intention of harming others and of causing damage. However, according to these practitioners, it is very difficult to verify the intention to create harm through tax planning, since the taxpayer’s interest is always to maximise their profits through tax economy.


Fraud presupposes the existence of a cogent rule determining conduct. For there to be illegal fraud, one must perform a given legal transaction with the purpose of bypassing this cogent rule.

For tax purposes, fraud in contravention of the law may be understood as the adoption by the taxpayer of a given business structure that fits into a determined levy rule (that is, without an extra-tax reason) only to bypass another rule of levy that would imply a more burdensome taxation .

Just as with abuse of right, illegal fraud as a negative limit to the practice of tax planning is challenged by some Brazilian legal scholars. This is the view shared by Professor Heleno Taveira Torres, for whom there is no capacity for fraud in a contravention of the law due to bypassing tax levy rules.

It is worth mentioning that this conflict within the understanding of tax planning is a result of recent changes to doctrine and case law in Brazil’s tax administrative courts; these are still very new, and it is too soon to confirm the presence of a trend, since the Brazilian judiciary (most notably the Supreme Court) has not yet expressed a conclusive view on the matter.

Positive Limits to Tax planning: Reason, Purpose and Consistency of Legal Transactions

As mentioned, part of the doctrine has been adopting positive limits to tax planning. The first of them, recognised as applicable in our legal system by Marco Aurélio Greco, corresponds to reason, purpose and consistency of the legal transaction.

I take the view that the reason and purpose of the legal transaction may not be predominantly tax-related. In fact, the reason of the parties (the intention) to obtain tax economy would not be sufficient to carry out the transaction. It would be necessary to demonstrate that there were other reasons for its performance.

Moreover, in addition to there being a reason and predominantly non-tax purpose, in order for the transaction to be opposed by the tax authorities it would be necessary for its reason and purpose to be compatible. Therefore, it should be possible to demonstrate that the predominantly non-tax reason is compatible with the intended purpose of the performance of the legal transaction. In other words, it is necessary for there to be a business purpose other than tax economy itself.

This position is being adopted by the Brazil’s tax administrative courts, as seen in appellate decision No. 103-23.290, dated 5 December 2007, rendered by the First Taxpayers’ Council.

This appellate decision, representing the interpretation trend now present in our tax administrative courts, indicates that the legal transactions practised by the taxpayer are to be accompanied by a business or corporate purpose. They would be the ones to provide support to any tax economy reached through legal transactions made between private parties.

Therefore, in case the application of this positive limit is accepted as valid, there may be cases in which the tax planning is lawful, without any simulation, fraud or abuse of right, and it would still be possible for the tax authorities to disregard it.

Positive Limits to Tax Planning: Consistency with Strategic Planning of the Economic Venture

In the second positive limit identified for tax planning, the transaction is consistent with the strategic planning of the economic venture.

After verifying the consistency between reason and purpose (which must not be predominantly tax-related), one could still challenge whether a given transaction would be coherently included  in the strategic planning of the economic venture.

Such limit, however, is not accepted by most Brazilian practitioners. Investigating the strategic planning of the company, in order to identify the tax effectiveness of a given transaction, is not part of our everyday activities. It is a matter for those working in the field of law and economics.

From the tests briefly described herein, it is possible to analyse the transactions practised by the Brazilian taxpayers and to verify whether they may be subject to challenge by the tax authorities. This is a very difficult exercise, necessitating every instance of tax planning to be closely overseen by qualified professionals, along with those who know the taxpayers’ activities in depth and have investigated the non-tax purposes of the structures those companies have implemented.

Back to top

Follow us on LinkedIn

News & Features

Community News



Pro Bono

Corporate Counsel

Women in Law

Future Leaders

The UK Bar

Practice Areas


The Who's Who Legal 100


Special Reports



About Us

It is not possible to buy entry into any Who's Who Legal publication

Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.

Copyright © 2017 Law Business Research Ltd. All rights reserved. |

87 Lancaster Road, London, W11 1QQ, UK | Tel: +44 20 7908 1180 / Fax: +44 207 229 6910 |

Law Business Research Ltd

87 Lancaster Road, London
W11 1QQ, UK