The Organization for Economic Co-operation and Development (OECD), in partnership with the G20, developed the Global Anti-Base Erosion Rules (GloBE/Pillar 2). These rules seek to establish a coordinated tax system ensuring that large multinational groups, with annual revenue of 750 million euros or more, pay a minimum tax on income in each jurisdiction where they operate.

Under this system, subsidiaries or controlled entities in jurisdictions with an effective tax rate below 15% are subject to an additional tax in countries adhering to the Pillar 2 guidelines.

As a G20 member, Brazil has indicated it will likely align with the Global Minimum Tax (currently adopted by various jurisdictions, including the European Union and the United Kingdom). This change will affect not only Brazilian companies with subsidiaries abroad but also Brazilian subsidiaries of foreign groups, impacting all global profits from 1, January 2024. The guidelines require Brazilian companies to pay an additional tax if they are taxed at a rate lower than 15%.

Despite Brazil’s combined corporate tax rate (“IRPJ” and “CSLL”) being 34%, there is concern that the total tax burden may increase due to the new rules. This is because the OECD rules focus on the effective tax rate on income, which in Brazil can be reduced below 15% by tax incentives such as government subsidies, the Manaus Free Trade Zone, and other deductions. Additionally, even if a company is not subject to the minimum tax, new compliance obligations are expected.

Although these rules are not yet in effect in Brazil, Brazilian companies may face indirect taxation in more than 40 countries that have adopted them. Jurisdictions with tax rates below 15% will have the primary right to tax before transferring this right to the country of the ultimate parent entity.

Stay tuned for further updates on the implementation of these rules in future editions.