The First Section of the Brazilian Supreme Court of Justice (STJ)¹ will rule on the possibility of deducting Interest on Net Equity (JCP)² from the calculation basis of Corporate Income Tax (IRPJ)³ and Social Contribution on Net Profit (CSLL)⁴ when such interest was calculated in fiscal years prior to the payment authorization. This decision will be made under the repeated appeals procedure and will be binding on lower courts. The ruling will be issued in Special Appeals No. 2.161.414/PR, 2.162.629/PR, 2.163.735/RS, and 2.162.248/RS, Theme 1319, under Justice Paulo Sérgio Domingues’s oversight.

Context of the Controversy

Brazilian Law No. 9.249/1995, Article 9, allows companies to deduct from their net profit amounts paid or credited as Interest on Net Equity, thus reducing the calculation basis for IRPJ and CSLL. However, the Brazilian Federal Revenue Service and the Administrative Council of Tax Appeals (CARF)⁵ maintain that this deduction is only valid if made in the same fiscal year in which the profit was determined, as established by Normative Instruction RFB No. 1.700/2017.

Conversely, taxpayers argue that the legislation does not impose such temporal limitation, allowing deduction even when JCP payment or credit occurs in a fiscal year subsequent to profit determination. It should be noted that STJ panels’ jurisprudence has been favorable to taxpayers, recognizing the possibility of deducting JCP paid or credited in subsequent fiscal years.

Decision Impacts

While the controversy has no scheduled judgment date, the position to be established by the STJ will have binding effects on other courts and administrative bodies, potentially standardizing the understanding of this matter and directly impacting companies that make JCP payments related to profits from previous fiscal years. The decision may also influence the positioning of CARF and the Federal Revenue Service, which currently maintain a restrictive understanding regarding retroactive JCP deductions.

Therefore, considering the possibility of effects modulation⁶ that may be applied by the STJ, it is important to evaluate the convenience of filing individual lawsuits to discuss this matter, preferably before the controversy’s judgment, although it is not possible to predict the terms of such modulation or if it will indeed occur.

¹ STJ (Superior Tribunal de Justiça) is Brazil’s highest court for non-constitutional matters

² JCP (Juros sobre Capital Próprio) is a Brazilian tax-deductible form of shareholder remuneration

³ IRPJ (Imposto de Renda da Pessoa Jurídica) is the Brazilian Corporate Income Tax

⁴ CSLL (Contribuição Social sobre o Lucro Líquido) is a social contribution tax on net profit

⁵ CARF is Brazil’s highest administrative tax court

⁶ Effects modulation refers to the court’s power to limit the temporal effects of its decisions