Federal Tax Authority restricts exemption from income tax on deposits from accounts held abroad
The net worth increase arising from the exchange variation of non-interest bearing deposits held in financial institutions abroad has always been (and still is) considered exempt from taxes. What about the transfer of funds from abroad to Brazil? The rule is not to tax exchange variation. However, to everyone’s surprise, the Federal Tax Authority presented a position distorting this rule (SC Cosit nº 115/2021).
Every year, taxpayers update in their income tax returns (“DIRPF”) the balance in reais held in their foreign account. In the “Questions and Answers” section prepared by the Federal Tax Authority, the position is for exemption of the increase in net worth resulting from exchange variation, including indicating which information should be included in the “exempt and non-taxable income” field of the DIRPF.
As of now, the understanding of the Federal Tax Authority is that the exemption for exchange variation on non-remunerated deposits reaches the exchange variation only while the funds are kept abroad. Once they come to Brazil, the exchange variation between the base date of the last DIRPF and the date the funds come to Brazil, if positive, must be taxed by the capital gains. The following statement by the tax authority is a distortion with no grounds “in the event of rights acquired in foreign currency with income originally earned in reais, the taxable capital gain corresponds to the positive difference in reais between the sale value of the currency deposited in a non-remunerated account and its acquisition cost – the amount originally deposited, being exempt the exchange variation calculated up to December 31 of the calendar year prior to the transfer”.
What does that mean? It means that the Federal Tax Authority wants to tax the positive exchange variation between December 31 of the year prior to the withdrawal until the withdrawal date.
This interpretation seems somewhat inadequate, since it contradicts the Federal Tax Authority’s own understanding. Needless to say that it would suffice for the taxpayer to plan to bring to Brazil the amount acquired abroad on January 1st – exempting him;herself from taxation.
With this understanding, taxpayers should be careful when bringing funds to Brazil so that they are not taxed. The recommendation is for them to be aware of the possibility of internalizing the money held abroad on January 1st to mitigate the risk of being questioned by the inspection in relation to the taxation of exchange variation.