The First Section of the STJ (Superior Court of Justice – Brazil’s highest court for non-constitutional matters) has scheduled, for November 12, a judgment under the repetitive appeals system concerning the possibility of deducting Interest on Equity (JCP) from the calculation bases of IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profit) when such JCP was calculated in fiscal years prior to the corporate resolution and/or the actual payment. The decision will have binding effect on lower courts and on CARF (Administrative Council of Tax Appeals – Brazil’s main administrative tax tribunal) under Theme 1,319.

The controversy involves two opposing interpretations:

• (i) The tax authorities’ position, which argues that the corporate resolution determines and restricts the deduction to the corresponding fiscal year;
• (ii) The taxpayers’ position, which maintains that although the obligation to pay arises from the corporate resolution, the deduction may occur in a different fiscal year from that in which the profit was calculated, including in subsequent years, upon payment or recognition by resolution.

There are precedents from the First Section dating back to 2009 that allow the deduction of JCP related to prior fiscal years, affirming that there is no legal requirement for simultaneity between profit calculation and deduction. Additionally, the MPF (Federal Prosecution Service – an independent institution responsible for defending public and social interests in Brazil) has issued a legal opinion recognizing the right to deduct JCP since 1997, including for amounts related to previous fiscal years.

Given the scope and binding effects of the repetitive ruling, it is important for taxpayers who may be affected by this issue and who do not currently have a judicial dispute regarding this matter to assess the advisability of formally stating their position before the scheduled judgment, in order to safeguard their rights and mitigate risks arising from a possible modulation of effects.