BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior and Bruno Marques Feitosa, William Freire - Advogados Associados
the national film industry ( contribuição para o desen- volvimento da indústria cinematográfica nacional – CONDECINE), a federal contribution of up to 3% of gross revenue dedicated to the national film industry. Transactions involving non-resident providers also trigger withholding taxes, such as withholding income tax ( imposto de renda retido na fonte – IRRF) (15%) and CIDE-Remittance (10%). The system is currently undergoing a major transi - tion due to the 2023 Constitutional Reform. Starting in 2026, Brazil will implement a dual VAT system con - sisting of a subnational tax on goods and services ( imposto sobre bens e serviços –IBS) and the Federal Contribution on Goods and Services ( Contribuição sobre Bens e Serviços – CBS). This new framework explicitly adopts the destination principle, ensuring that all digital products and services are taxed at the point of consumption. Furthermore, the Brazilian Supreme Court has recently clarified the legal land - scape by ruling that digital goods and software are subject to service taxes ( imposto sobre serviços de qualquer natureza – ISS) rather than state merchan - dise taxes ( imposto sobre circulação de mercadorias e serviços – ICMS), providing greater legal certainty for international providers operating in the jurisdiction. 5. Anti-Avoidance and Anti-Evasion Measures 5.1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes Brazilian law distinguishes lawful tax planning from unlawful conduct based on the legality, timing and substance of the taxpayer’s acts. The differentiation is grounded primarily in the CTN and in criminal tax legislation. Tax evasion ( evasão fiscal ) generally refers to unlawful conduct aimed at suppressing or reducing tax liability after the taxable event has occurred. It involves viola - tion of a legal duty and typically includes omission of revenue, concealment of transactions or falsification of documentation.
Tax fraud ( fraude ) entails deliberate and deceptive conduct intended to mislead the tax authorities. Crimi - nal liability may arise under Law No 8,137/1990, which typifies crimes against the tax system. Fraud is char - acterised by intentional misrepresentation, false book - keeping or the use of fictitious operations designed to conceal taxable income. Simulation and Disregard of Legal Acts Brazilian law also recognises the concept of simu - lation ( simulação ), whereby a legal act is structured to conceal the true nature of a transaction. Article 116, sole paragraph, of the CTN authorises the tax authorities to disregard acts or transactions carried out with the purpose of disguising the occurrence of the taxable event or its essential elements. Although this provision has not been formally regulated, its con - stitutionality has been upheld by the STF. Administrative and judicial practice has increasingly relied on substantive analysis of transactions. Indica - tors of abusive arrangements, particularly in cross- border contexts, include: • artificial interposition of entities lacking operational substance; • circular financial flows; • use of low-tax jurisdictions without economic rationale; • recharacterisation of financing instruments; and • treaty shopping structures without a genuine busi - ness purpose. While Brazilian law does not codify a comprehensive business purpose test, tax authorities and admin - istrative courts frequently examine the economic substance and legal validity of transactions. Legiti - mate tax planning remains permissible, provided the structure is legally effective and supported by non-tax commercial justification. 5.2 Anti-Avoidance Mechanisms Brazil relies primarily on statutory anti-evasion provi - sions rather than a fully regulated general anti-avoid - ance rule. The CTN authorises the tax authorities to disregard simulated or fraudulent acts designed to conceal the taxable event or misrepresent its legal elements.
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