The Brazilian Federal Revenue Office issues new guidelines for the taxation of earnout clauses

The Brazilian Federal Revenue Office issued the SC COSIT No. 82/2023, strengthening its understanding of the taxation of payments made under earnout clauses, giving more details on the applicable rules.

The main concern of taxpayers was related to the taxation of payments subjected to future conditions, considering that earnout clauses usually involve instalments structures.

Since 2014, the Brazilian Federal Revenue Office has been dealing with the matter by considering the entire sum paid to the beneficiary, including future instalments, provided that the tax collection would be made according to the payment schedule.

The new announcement made by the tax authorities provided more details on this understanding, clarifying how to apply the different tax rates (which are higher according to the amount being taxed).

Thus, the IRS has made it clear that the progression of tax rates must be considered when taxing the complementary amounts eventually paid, considering the applicable rate in relation to the total amount received (i.e., both the payments made until then and the complementary payment), deducting what has already been paid to the tax authorities.

Hence, the Brazilian Federal Revenue Office, stated that the entire sum received by the beneficiary (i.e., the downpayment and the instalments) should be considered to assess the applicable tax rate, provided that the taxes eventually collected would be deducted from the new amount due to the tax authorities.

Our team is available for additional clarifications, as well as to assist in matters related to the taxation of corporate operations.

Gustavo Flausino Coelho –

Thales Castanheira –

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