Brazil: TRF3 and tax loss carry-over

Recently, the district court of the 3rd region (TRF 3) has passed a judgment regarding limits for compensating tax losses of merged companies and companies facing bankruptcy. This created an important precedent for taxpayers.


Up until the judgment, tax debts (IRPJ and CSLL) of merging or bankrupt companies were capped at 30% of the respective year`s revenue while the rest had to be paid in the following years.

The judges of the 4th panel of the court decided in a civil process to scrap the 30%-cap because it was illogical and caused the tax authorities to miss out on tax payments. Instead, companies now have to pay the total debt amount in full and right away.

The logic behind the judgment is that bankrupt or merging companies will not continue to exist in the following years wherefore the tax authorities are likely to lose 70% of the owed taxes.


Institutional Conflict

While the Receita RFB (Federal do Brasil ) is in favor of the judgment as it closes a perceived tax loophole, the CARF (Conselho Administrativo de Recursos Fiscais) continues to implement the 30%-cap for merging companies while invoking laws 8.091/95 and 9.065/95. Due to the disagreemnt, companies should pay attention to the judicial development of the topic.