Family business: what changes with the tax reform?

How will the expenses paid by the companies for the benefit of the members’ families be treated?

 

What is DDL (Portuguese acronym for Disguised Profit Distribution) and what does it have to do with the taxation of dividends proposed by the current economic team in Bill No. 2,337/2021?

DDLs are situations defined by law which implications result in additional taxation to the legal entity. If a certain transaction is on the DDL list and is carried out by the legal entity with a related person, the consequence is additional taxation to that legal entity (i.e. adjustments in the IRPJ (income tax) and CSLL (social contribution over profit) calculation basis).

The so-called second stage of the tax reform, which is focused on income taxation, proposes the return of taxation of dividends at 20% (after 25 years without taxing them) and as a result closes all the doors to alternative structures that could be used to avoid this taxation by expanding the DDL hypotheses.

The statement of intention of the Bill explains that the reinstatement of the taxation of dividends requires an improvement and updating of the existing rules on DDL.

But how will this affect family business? The improvement of the DDL rules brings expenses with health plans, education, property rentals, vehicles, etc., which end up benefiting the shareholders and their families (who are now defined as connected people) as new DDL hypotheses.

This change is important because many family business, whether for reasons of organizing expenses or for reasons of negotiating with health plans and other institutions/suppliers, end up concentrating these expenses at the level of family holdings (instead of concentrating on individuals).

The purpose of the rule is to reduce the cases of indirect payment of dividends, since dividends would now be taxed.

The Bill also provides that the profits distributed in disguise will be considered net, being necessary, for the calculation and collection of the tax, the grossing-up of the amounts due.

Payments made for the benefit of the managers of these legal entities, even if they are shareholders, will be considered remuneration, with an even worse consequence than the DDL rules (these amounts would be taxed by the IRPF (income tax) at 27.5% and by the INSS (social security tax) at 20%).

If the Bill is approved, families will have to reassess tax plans that include the concentration of expenses on family holdings.

By Júlia Malafaia Vituli Silva,

associate at Candido Martins advogados.

julia@candidomartins.com.br