This rate will remain in force for triggering events occurred until December 31, 2018, thus, from January 1, 2019 on, the CSLL rate applicable to financial institutions will return to 15% (fifteen percent).

The wording of Law 13,169/2015 differs from Provisional Measure 675/2015, which set forth a 20% rate for all entities listed above and did not provide for the reestablishment of the percentage of 15% as of 2019. In this sense, the 20% rate established by Law 13,169/2015 – and previously mentioned by Provisional Measure 675/2015 - is already in effect and is applicable to triggering events occurred after September 1, 2015. Nonetheless, for Credit Cooperatives the CSLL collection under the 17% rate will be valid from October 1st, 2015 on and, to these entities, the applicable rate in September is 20%.

In addition, as mentioned in our LEXpress Extraordinary Edition 04/2015, we believe that the new rates could be judicially questioned, considering that there are good grounds to sustain they were established under violation of constitutional norms. According to the formal explanations to the enactment of Provisional Measure 675/2015, the increasing of CSLL rates aims at “establishing a tax burden that is compatible with the contributory capacity of the covered economic sectors”. The Brazilian Government will ensure an increase in revenues for 2015 in the order of approximately R$ 1 billion and for 2016 and 2017 an increase of approximately R$ 4 billion a year with the changes introduced by Law 13,169/2015.

Finally, it is worth mentioning that for all other legal entities not mentioned by Law 13,169/2015 the CSLL rate remains at 9% (nine percent).

FEDERAL LEGISLATION Provisional Measure 694/2015: changes to tax treatment of Interest on Equity

Along with the fiscal adjustment measures that are being implemented by Brazilian Government, on September 30, 2015 Provisional Measure 694/2015 was published in a special edition of the Official Gazette. Among other subjects, Provisional Measure 694/2015 modified Law 9,249/1995, increasing the Income Tax (“IR”) rate on Interest on Equity (“JCP”) and including a new limit to respective calculations.

According to the new wording of section 9, paragraph 2 of Law 9,249/1995, the IR rate on JCP, levied on the date of payment or of credit to the beneficiary, was increased from 15% (fifteen percent) to 18% (eighteen percent).

However, it is worth mentioning that in the event of JCP payments to foreign investors domiciled in countries that executed Double Tax Treaties with Brazil, the applicable rate may be less than 18% (eighteen percent) due to limitations imposed by the mentioned agreements regarding the dividends and the interest payments. Considering the controversy on the framework of JCP payments to foreign investors, it is important to highlight that the taxation of these payments may be limited to a lower percentage that the one established on Provisional Measure 694/2015.

Moreover, the heading of section 9 of Law 9,249/1995 was also amended to change the limit of the JCP payable amount, which is no longer only calculated based on the Long Term Interest Rate - TJLP, but considering one limit: (i) the TJLP rate, pro rate die, or (ii) the fixed percentage of 5 % (five percent) per year, whichever is lower.

According to the formal explanations to the enactment of Provisional Measure 694/2015, the introduction of a new limit to the JCP calculation aimed at offsetting the successive increases of TJLP rates and at avoiding possible effects on calculation of the net income and the Brazilian Social Contribution on Net Income taxable basis, and, consequently, the reduction of tax revenues. In consonance with Resolution 4,437, issued on September 24, 2015 by National Monetary Council - formed by the Ministers of Finance, Joaquim Levy, Planning, Nelson Barbosa, and the president of the Brazilian Central Bank, Alexandre Tombini - the TJLP rate was fixed at 7% per year for the fourth quarter of 2015, the highest rate since 2006, which demonstrates that the rules of Provisional Measure 694/2015 imply significant reduction in the JCP to be paid by Brazilian
legal entities.

Lastly, there were no changes regarding the JCP deductibility limit, which remain limited to the higher of the following amounts: (i) 50% of net income after deducting the Social Contribution on Net Income - CSLL and before deduction of the IR provision, without including the interest on equity; or (ii) 50% of the sum of retained earnings and profit reserves, without computing the result of the current period.

The wording of Provisional Measure 694/2015 sets forth that the IR increased rate will be in force as of January 1, 2016. For that, however, the Provisional Measure must be approved by the National Congress and converted into law in 2015.

This Newsletter was prepared with the cooperation of partners Tiago Espellet Dockhorn and Fernando Colucci and lawyers Camila Leão Borges, Camila Bacellar Soares and Camila Chierighini Nazar.