The Finance and Taxation Committee of the Chamber of Deputies voted for the approval of PL 3,489/21 which, in general terms, establishes automatic taxation on profits and dividends earned by individuals residing in Brazil in relation to subsidiaries resident and domiciled in jurisdictions with favored taxation.

This rule aims to avoid the deferral of taxation on profits and dividends earned by individuals in relation to investments in subsidiaries located in jurisdictions with favored taxation.

The original wording of PL 2.337/21, which is currently awaiting consideration by the Federal Senate, had this rule, however, after numerous modifications, the provisions dealing with the CFC Rule for individuals were withdrawn. PL 3489/21 basically tries to reintroduce the same devices now in isolation.

Based on the approved text of the said PL:

1. Profits arising from interests in subsidiaries resident and domiciled in tax havens and/or privileged tax regimes will be considered made available to the controlling individual resident in Brazil, on the balance sheet date in which they were calculated, even if they were not distributed to the individual in the form of dividends;

• Such income must (i) be taxed monthly, in advance, by the lion meat (from 0% to 27.5%); and, (ii) make up the IRPF calculation basis in the Annual Adjustment Statement;

• The positive exchange variation must be definitively taxed, as a capital gain (from 15% to 22.5%) when the dividends are effectively received by the individual.

If approved by the Chamber of Deputies, PL 3,489/21 must still be sent to the Senate and, only afterwards, sent for presidential sanction. The PL would only come into force in 2023 if sanctioned by the president in 2022, which we believe is extremely unlikely.