The deductibility of interest on equity to usufructuaries of shares: CARF’s consistent decision

Last January, the Brazilian Administrative Council for Tax Appeals (CARF) published decision No. 1401-004,050, which discussed the tax treatment given to the payment of Interest on Equity (JCP) to beneficiaries who would, in fact, be beneficiaries of the company’s shares.

In accordance with Article 9 of Law No. 9,249/1995, the legal entity may deduct, for the purposes of calculating taxable income, the JCP credited to the holders, partners or shareholders of the company.

In the case at hand, the Federal Revenue of Brazil understood that deducting the JCPs credited to the usufructuaries of the shares was not possible due to the literal interpretation of article 9 of Law No. 9,249/1995, under the rationale that the legal provision would not cover the JCPs paid to beneficiaries for purposes of deductibility in calculating the profit due.

CARF, in a very coherent manner, disregarded the grounds from the Tax Inspection, as it understood that since the tax legislator omitted to attribute effects to specific cases such as this one, one should seek the typical effects resulting from private law.

In this sense, both the Civil Code and the Brazilian Corporation Law are clear in establishing that the usufructuary has the right to possession, use, administration and perception of the proceeds (article 1,394 of the Civil Code), in such a manner that both dividends (Article 205 of the Brazilian Corporation Law) and JCP (interpretation of Article 9, § 7, Law No. 9,249 / 1995) must be credited to the usufructuary.

CARF’s ruling was undeniably well received by taxpayers and lawyers who work daily with the Administrative Council. It is important, however, to ask: why are such decisions received by taxpayers with surprise? It is clear that there was already a position taken by CARF in the sense of recognizing the deductibility of JCPs credited to usufructuaries of shares, but why are decisions that reflect objective interpretations of this type not as frequent?

A significant number of lawsuits, especially those involving more material tax infraction notices, are decided in a favorable manner to the tax authorities, usually by a casting vote, for reasons that do not necessarily reflect the more technical interpretation of the tax law.

These reflections, therefore, lead us to another question: would the extinction of the casting vote introduced by the amendment to the recent Provisional Measure nº 899/2019 – provided its constitutionality is not questioned -, be capable of increasing the number of decisions current rendered that are considered bold?

It is up to us, lawyers and taxpayers, to monitor the next debates.

By Júlia Malafaia Vituli Silva, associate at Candido Martins Advogados