Since the enactment of Law No. 9,249 of December 26, 1995, there has been a broad exemption on the distribution of profits and dividends. When the Law was approved, the reasons justifying such exemption were explained in the statement of grounds as follows:
“12. With regard to the taxation of profits and dividends, complete integration is established between the individual and the legal entity, taxing such income exclusively at the company level and exempting it upon receipt by the beneficiaries. In addition to simplifying controls and inhibiting evasion, this procedure stimulates, by reason of the equalization of treatment and the applicable rates, investment in productive activities.”
The justification was that companies already pay taxes on the profits earned and it would make no sense to tax again an amount that has already been taxed at the source. Therefore, it is possible to conclude that what led Law 9,249/95 to abolish the taxation of dividends was the existence of the PIS/COFINS taxation levied on gross revenue, representing an indirect taxation of profits.
Thus, currently in Brazil the taxation of dividends is tax-exempt, with no Income Tax charged on amounts received by individuals. However, this exemption is questioned by economists and politicians who argue that the taxation of dividends could bring greater fiscal justice to the country.
Without delving into the merits of the discussion regarding the social, political, and economic reasons for the possible taxation of dividends, there are reports in the media that the current government will propose the taxation of dividends, based on the argument that Brazil is one of the few countries that does not tax the distribution of profits, which would privilege the wealthiest segments of the population.
There are several bills proposing the taxation of dividends, and it is still not possible to know whether and when they will be voted on. However, there is Bill 2,337/2021, which has already been approved in the Chamber of Deputies and awaits review by the Federal Senate, which justifies in its statement of grounds that Brazil should follow international trends in the taxation of dividends:
“3. It is observed that, in most countries, the profits or dividends distributed by the legal entity are taxed, especially in the case of an individual beneficiary. Among the countries of the Organisation for Economic Co-operation and Development – OECD, only Latvia adopts the same system as Brazil, that is, it does not tax the distribution of profits or dividends to individual partners. Moreover, emerging countries, such as China, India, Argentina, South Africa, and Colombia, whether OECD members or not, also adopt the taxation of distributed profits.”
The criticisms of Bill 2,337/2021 are to the effect that the bill violates the constitutional principle of isonomy, which holds that taxpayers in equivalent situations must be treated equally, while those in different situations may be treated differently.
And the understanding is that it violates this principle because there is no distinction between the profitdistributed to partners in a partnership of persons and the dividends distributed to shareholders in a capital company, since, in capital companies the shareholders seek a return on the investment made, while in a partnership of persons the profit remunerates the work of the partners.
Therefore, as Bill 2,337/2021 awaits consideration in the Federal Senate, it is not possible to predict what the likely content of the final text will be, since during the approval process several changes are inserted into the bill until the final wording that will be put to a vote and approval.
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