Transcription
Good morning to everyone. Welcome to our live stream to discuss the approval in the Senate yesterday of PL 1087. It's a pleasure to be with all of you here today. I'd like to initially thank and introduce our esteemed debaters who, along with me, will discuss this topic again. I am William Heiser, responsible for the estate planning area here at Itaú. With us today, also from Itaú, is Michel Murier, who is responsible for content and development in the WF Planning area, and also a lawyer. And also our main speaker, Dr. Hermano Barbosa, who is a partner at Barbosa Montenegro Aragão Advogados BMA. Hermano, it's a pleasure to be here with you. Michel, thank you too for sharing with us today with our audience.
Before I pass the floor to them, I'd like to make our usual disclaimers. Explaining that this is not legal advice, neither from us, nor, I believe, from your side, Hermano, it's just a debate. I would ask everyone to submit their questions here through our chat. Michel and I will look at the questions and pass them on to you. For questions that are not answered here, or if we run out of time, please identify yourselves with your names and emails. Obviously, other participants will not have access to this information so that we can respond to you in writing for those questions that were not answered.
And to give a brief presentation, just to remind you that yesterday we had the approval of PL 1087 in the Senate. This bill originated from the Chamber of Deputies. In the Chamber, it underwent an alteration with a substitute text by the rapporteur of the bill in the Chamber. It went up to the Senate, and the Senate conducted the necessary discussions. The rapporteur's decision and determination in the Senate was to maintain the text, despite having identified and pointed out points of unconstitutionality or some legal uncertainties, in his view. Yesterday, even the senators who led the discussions yesterday about the vote, who took the podium to make their defenses and comments, made it clear that they will work together with the other senators to have a text for deliberation. This morning, Minister Gleisi Hoffmann even stated in the news that she will work with the Senate to adjust specific points that we will address here today in this live stream. So, without further ado, I'd like to quickly pass the word to Hermano again, and then to Michel to make a presentation from our side, and then we'll open up for our debates.
Thank you, William. Thank you, Hermano, for participating here. I think, Hermano, and before we, you know, we're already starting to receive quite a few questions here in the chat, but what I'd like your help with, you know, I think we debated PL 1087 quite a bit, especially after its approval in the Chamber, you know, there was already a very strong discussion regarding a topic that the bill addresses, which ends up impacting our clients significantly with regard to dividend distribution, right? But I wanted to take a step back, you know, I don't know if you can summarize a bit of everything the bill brings, right? It's not a very extensive bill in terms of pages, but its dynamic is somewhat complex, right? Especially regarding the minimum tax on high incomes. So, I would really like you to take that step back, explain, in general terms, the bill, how the calculation of the new tax works, how it also relates, in a way, to dividends, right? And then we'll move on to the hotter topics, the ones with more questions that have already started to emerge here in the live chat.
Thank you, Michel. Thank you, William. Good morning to everyone who is with us. It's a great satisfaction to be here. I'm very happy to be able to discuss this topic with you that has accompanied us in discussions throughout this year of 2025. And now, finally, it seems there will be a resolution, right? It seems there will be an end. Taking advantage of your point, Michel, to recap. We are talking about PL 1087, as William mentioned, which presents itself as a minimum income taxation bill, right? But in reality, it ends up having a very central content, a very large impact, which is dividend taxation. Using these three thematic axes, right, which I think allow us to divide well what this project deals with. On the one hand, it deals with exemptions established for individuals who are, let's say, at the base of the pyramid, right? Who have a lower annual income. On this point, I think it's important to comment quickly that the path adopted by the legislator was not a correction of the income tax table, but an exemption for those at the base, right, of the progressive pyramid. So, it does not affect the calculation of the effective income tax rates that people pay on their salaries and rents, and so on, right? It's just an exemption for those below those brackets of R$ 5,000, R$ 7,000, in which case there would be a partial exemption, R$ 5,000 for total exemption. And the topics we will debate here today more directly are the other two, which are the so-called monthly and annual taxation of high incomes, high-income taxation, which is a new modality of income tax incidence and withholding tax at source on dividend distribution, right? So, let's go. How does this high-income taxation work? And first, an important comment. This is a law that, everything leads us to believe, after Senate approval, is only pending sanction by the President of the Republic, which should happen quickly, given the importance given to the matter. Once sanctioned, it will enter into force, as it increases taxes and creates new taxable events, starting January 1, 2026. It is not yet valid in 2025; it starts to be valid from 2026. So, from 2026, how will this new regime work? What is this so-called high-income taxation? High-income taxation is a new modality of income tax incidence that would happen, that will happen, right? Now with the approved project, we already have to start changing the tense from future to past future of the present, which will happen at the time of submitting the annual adjustment declaration. So, as the law enters into force in 2026, this will be the first period of calculation. The first calculation of annual income will happen when submitting the 2027 income tax return, which looks back, which looks at 2026, right? And at that moment, what will be done? We will have a calculation of all income earned by the individual during the period, with a few exceptions, right? Then, based on this income earned by the individual, we apply a formula that will determine a specific rate that will apply as a minimum income tax. It's a rate that goes from 0 to 10%. I become subject to this new rule if I have a total annual income exceeding the equivalent of R$ 600,000 and reach the maximum rate if my total annual income reaches R$ 1,200,000. And then there is a table to calculate how much tax will be paid between R$ 600,001 and R$ 1,200,000, going from 0 to 10%, and from R$ 1,200,000 onwards, the rate is flat, fixed at 10%. Just an initial comment, the income considered to calculate the applicable rate will be applied to all income calculated. So, if I have R$ 1,200,000, I will pay 10% on all applicable income, not just on the excess over R$ 1,200,000. Very well. What is my step-by-step process for doing this? First, I will look at all the income earned by the individual, right? To do this, we don't yet know how the annual adjustment declaration system will work, but according to the law, I consider all income earned by the individual with only the exceptions expressly provided for in the law, right? So, basically, I exclude capital gains, income received cumulatively, donations and advances on legitimate inheritance, inheritances, compensation for work accidents, material or moral damages, but not excluded are lost profits, savings income, income from securities that are exempt, CRI, CRA, real estate investment funds, FIAgro, and others, right? But income from corporate participation is not excluded, so dividends are not excluded, which tend to be the main base for taxation here, right? Next step, based on this total, right? Based on this annual income, after excluding the few and specific deductions, I calculate what my applicable rate will be, from 0 to 10%. In the case of exceeding R$ 1,200,000, I will have to pay at least 10% on that minimum income, right? Then, my next step, I will deduct R$ 1,000,000 from this tax payable amount, which is R$ 120,000, 10%, right? Then we look at your specific numbers here, Michel. If I keep reading, I'll get lost. I will exclude the amount of tax already paid during the calendar year. How so? Withholding tax on salaries I receive. Withholding tax on income subject to exclusive taxation with financial investments, right? Many times, there is a 15% tax. Taxation on income from foreign sources, which I have paid for any reason, capital gains monthly, for example, right? Capital gains are excluded, but foreign source income, investments abroad, offshore investments, right? which are subject to the 15% taxation we know, rent carnelião, among others. So, I will take everything I paid in income tax during the year, see how much it adds up to, and deduct it from the minimum tax payable. If there is still a balance, I have to pay this balance, right? If there is no balance, for example, if I have a salary that is proportionally high in relation to my dividend income, it's possible that the 27.5% I pay on my salary exceeds even, right, the 10% I would have on my total income, right? And then, after that, I still have a next step, which is to look at the companies that eventually paid me dividends, what is the effective rate of that company. I won't go into much detail here if you want. Later, in a Q&A session, we can go into more detail, but basically, if the effective taxation rate of the company that paid me dividends was 34%, and I anticipate that in the vast majority of cases it won't be, right? I might, if I add up the 34% taxation I suffered and the minimum income tax on the dividend generated for me, which is 10%, I might have some type of refund, right? The third block of law changes is to implement this minimum income taxation system. A 10% withholding tax is foreseen on all distributions of profits or dividends made by Brazilian legal entities to partners or shareholders who are individuals residing in Brazil or foreign investors. There is a reservation here for this withholding tax. It applies to beneficiaries, right, to partners or shareholders who are individuals, for distributions made from 2026 onwards, when within the same month they exceed the equivalent of R$ 50,000. So, if I received dividends distributed by a certain legal entity in the amount of R$ 49,000, R$ 1,000, there will be no withholding tax. This does not mean that this amount will not be considered at the end of the year to calculate a minimum tax that might be due. It just means there will be no withholding tax. On the other hand, if I have a dividend of R$ 55,000, R$ 1,000 distributed by the same legal entity, it will have to proceed with this withholding. And note that this is not calculated based on each payment; it is calculated based on the total payments made during the same month. Therefore, if in the same month I receive a first dividend distribution in the amount of R$ 30,000, therefore without withholding tax, and another, in the amount of R$ 40,000, R$ 1,000, but by the end of that period, I will have to sum the two. It exceeds 50. The second will have the withholding that was not applicable in the first payment, in that month of January, for example, right? So, this is, I think, a summary. It's a somewhat complex rule, right? It will require some time and attention for adaptation, but this is the rule that was approved by this project. Michel, I don't know if it's time for us to start talking about temporal issues, right, about profits for 2025, etc. If I'm not talking too much, I'll hand the word back to you.
No, great. I think, I think we can start. There are quite a few questions arising here regarding dividend distribution. The legislation has, in a way, provided for the preservation of profits calculated up to the end of 2025, right? And it has brought a rule that determines, right, that, well, there was a lot of discussion in the market, right, regarding whether this dividend should have been declared. Anyway, tell us a bit about this rule, right, regarding the 2025 profit. And to add some color, Hermano, regarding, I think the tax part is important, but we also notice in our day-to-day with clients that there is work involved in understanding the legal entity, the type of company, looking a bit at how to formalize, right, this issue of dividends up to 2025. So, I think it's a good topic, there are quite a few questions arising, and perhaps we can start there.
Let's go. This is a great topic. We are talking here about how this transition will work. I have a new law, and I have a new law that is being approved now to take effect from the following year, therefore from January 1, 2026, which determines a 10% withholding tax on profits or dividends distributed by legal entities, breaking, right, with our 30-year tradition of dividend exemption in Brazil. Dividends were already taxed in Brazil last year, from 1996 onwards, due to a 1995 law, they became subject to taxation, which is the current regime, which by chance will complete 30 years, right? So, it will have been almost 30 years of dividend exemption. Now, when this rule comes, the first question that arises for us, which seems to us is: well, if I have dividend taxation, these dividends refer to profits. But if I'm distributing in 2026, for example, certainly these profits will have been generated before the new law comes into effect, right? So, this was a natural doubt that arose since the presentation of the bill. Very well. How is the answer being given? First, the law enters into force for distributions made from 2026 onwards. Therefore, any distribution of profits or dividends made from January 1, 2026, will be subject to the new 10% taxation, even if the corresponding profits, from which, right, which are the basis for this distribution, were calculated previously, were calculated up to December 31, 2025. So, I think this is the first point. Second point, before the law enters into force, therefore, while we are in 2025, profit distributions are still not subject to the new taxation. Then the doubt arose, right? Well, but what about dividend declarations? Because a dividend can be a profit that is declared, meaning, the partners approve its payment, but it hasn't been paid yet. The payment happens in the future, and eventually the payment doesn't happen immediately. And what about dividends that were declared in 2025 but paid in subsequent years? The law has brought an answer to this question, which is, and I anticipate that in practice it will raise many practical issues, right? Many issues, many challenges, but which are exempt from taxation are profits declared in 2025, right? And when we talk about declared, we have to observe the formal act required by law, by the articles of association, by the bylaws to formalize this declaration in 2025, which refers to profits calculated up to December 31, 2025, provided that two requirements are met. First, that the payment occurs by the years 2026, 2027, 2028, meaning the 3 subsequent years. So, it's no use declaring a profit now to pay in 5 years or to pay indefinitely, that's not possible, right? Without tax incidence. And the second requirement, that the payment occurs according to the terms of the act approving the distribution. So, a call here, a warning to everyone, right? Those who do not want, and I think it will be the intention of everyone, to be subject to the new taxation regarding profits that have already been calculated by the legal entity or that will be calculated until the new law comes into effect, meaning, until December 31, will need to proceed with this declaration still in 2025, following all the rites and formalities that may be applicable to that legal entity, right? Even if there is a provision for payment in subsequent years, from an accounting point of view, it means that this profit leaves your equity account and becomes an account payable, becomes a liability of the company to the partner, already identifying the beneficiary partner, right? Already identifying the exact amount to be paid. And this payment must occur according to the terms in which the declaration was approved.
William, I'm sorry to interrupt you, but I wanted to bring up a point that has come up a lot in our conversations and that I wanted to move on to the question of the challenge that might arise and even potentially the discussion of creating a tax and corporate dispute, right, if I may say so, because these will be two terms that will connect. When we see this provision that was approved in the Senate and let's assume the president will sanction it without any veto, especially in this aspect, because it would be detrimental to revenue. In your view, at least what you have studied in your office and perhaps by talking to more of our colleagues, how do you distinguish between a limited liability company and a corporation, a publicly traded corporation, a privately held corporation, and especially in corporations, the issue of minority shareholders? In other words, the discussion that if I look at the Corporation Law, it determines that once it's deliberated, I have to pay the dividends within a certain period, right? Distribute to my shareholders. But the law says I can pay in the following years. If you could elaborate on this a bit, and I'll leave here just a bit of the reason for this concern. I have to think about what could be, right, one issue is whether I am violating the Corporation Law or not, but the second part is okay. And I, despite understanding that I am not violating the Corporation Law, in the case of a corporation, the tax authorities could say: "Wait a minute, but the Corporation Law says you should have deliberated and paid." So, it's a bit dichotomous, right? I might have a minority shareholder complaining, in case of a minority shareholder complaint, but if not, there would be nothing on the corporate side. But then my question goes much further than the corporate aspect, it's the tax aspect, right? Because the law talks about distribution, and perhaps the tax authority will eventually refer to the law of the fiscal year in the case of a company that deliberates and doesn't pay, but projects the payment for 3 years. I know it's a controversial question, but I wanted to ask it because it has come up a lot in our conversations. I wanted to hear your view on this.
But these are the good questions, Will. The controversial ones are the good ones. Let's go. How does this work? So, to be protected against the incidence of the new tax, you need to make this declaration this year, even if you eventually need this payment to happen in subsequent years. And before the bill underwent this alteration that established this express limitation or express authorization for the payment to occur in 2026, 2027, 2028, I think the topic from a tax perspective seemed a bit more controversial. Now, I think it has improved in this aspect, although many doubts may still arise from a corporate perspective. Where does this discussion come from, right, for us all to be on the same page? The Corporation Law, Law 64 of 1976, establishes in a certain provision, which is Article 205, paragraph III, that dividends, when declared, must be paid in the same fiscal year. In the same fiscal year. Of course, this is a mechanism to protect minority shareholders from potentially being subject to uncertainty regarding when they will receive dividends that were declared to them, right? And when the law talks about the same fiscal year, it was obviously thinking of a normal situation where results are calculated by April, right? Which is the deadline for the ordinary general meeting, where you will approve the company's accounts, profit distribution, and then you would have 8 months for the company to proceed with the payment, right? But in our case here, we will be facing situations where legal entities will need to declare dividends at the very end of the year, and we are already here on November 6, right? And obviously, the deadline until the end of the fiscal year is a short deadline, right? Based on profits that are past profits, meaning, calculated up to 2024, or intermediate profits related to the current year 2025, calculated by preparing a special balance sheet, which can eventually be prepared for this specific purpose, right? In my view, when we did not yet have this express provision in the bill that will become law, right? Regarding the possibility of payment in 2026, 2027, 2028, I had greater concerns about the issue that the payment must be made according to the terms of the declaration act and if this act could eventually be considered contrary to the law, even if contrary to corporate law, right? Now, from the moment I have an express authorization in the tax law for this to happen, it seems to me that this risk should no longer apply for tax purposes. So, for tax purposes, it seems to me that the law has provided security for payments to be made in the following years, 2026, 2027, 2028. I think the tax law could not be contrary to what it explicitly declared as an authorization, right? Now, another debate is in corporate matters, right? In corporate matters, the answer, I would like to have a simple, single, and especially secure answer to give to everyone watching here. But unfortunately, there isn't one, and I regret it. That's why I think this is a burden that may eventually be placed on the taxpayer who will be forced to make decisions now in a short period of time on very relevant patrimonial matters. But the way to distribute profits, the possibilities of distributing profits of a legal entity vary according to the regime of rules that apply to that company, which will vary depending on whether it is a limited liability company. A large limited liability company, a limited liability company that provides for supplementary regulation by the Corporation Law in its contract. A corporation, a corporation, a privately held corporation, a publicly traded corporation. What do they say besides the law? The articles of association, especially the bylaws in, in, of privately held corporations, publicly traded corporations? So, this is an analysis that, I know, we don't like to hear this from a lawyer, that it's a bit case-by-case, but unfortunately, we cannot have an answer that suits all cases. I think the answer that suits all cases is attention. And your degree of concern, as you anticipated, can vary depending on the nature of those profits being generated, if I have minority shareholders, they are the ones who might eventually be harmed. I think here it won't be the tax authorities. So, I think it's an analysis that will be done from a corporate perspective and not a tax one. From a tax perspective, I am reasonably comfortable with this.
Okay? This is good to discuss. And since we are talking about the corporate aspect, right, I would like, I don't want to follow your words and bring this attention to our audience, who really, the publicly traded and privately held companies in the case of corporations, which I believe in limited liability companies, I'll talk about them later, but I wanted to ask you about that too. Perhaps we have to rush due to the available time, because imagine if I have a corporation whose bylaws, in its social statutes, in its bylaws, have a determination that I will only calculate the profit, or rather, I will even close my balance sheet on December 31, but it will be calculated by April, which is when I will effectively authorize and approve it at my general meeting. In your view, if you can provide the solution, I don't want to just bring the concern and the problem to our listeners. Would it be appropriate for each of these companies and their controllers and shareholders, right, to eventually hold an extraordinary deliberation? Before the end of the year, and obviously it will depend on their bylaws. So, I think the reflection here for those listening is to discuss with their legal and accounting departments, right, their auditors, the possibility that if they, right, eventually do not want to pay the 10% from next year on the past profit of 2025, to deliberate on this. But this deliberation must, just confirm if this is correct, it must happen before December 31st, because otherwise, I will lose my right, right, to the exemption from applicability from 2026 onwards. Is my understanding correct?
Your understanding is absolutely correct, Will. And it sheds light on these concerns and recommendations that we have been directing to clients, which is what it means for you to distribute a profit that is still being generated during 2025. The distribution of profits generated up to 2024, they are already crystallized in the company's balance sheet in the financial statements. I think that's right. It's easier, right? And if I want to distribute the profits that are still being generated during 2025, because clearly, if life were to run its normal course, I would only have the calculation of these profits at the closing, on December 31, 2025, precisely when the deadline for the declaration itself ends. Therefore, I will have to do a prior calculation, and the law allows, right, the distribution of intermediate, intercalary dividends, these dividends based on periods that do not refer to a full year. But I will need, in addition to the law, to look at what my bylaws provide, especially in terms of formality, because the point you touched on is fundamental. I need to characterize that the approval of this distribution happened still during 2025 for me to meet the law's requirements. And the form of approval of these profits can first vary from one type of company to another, right? Or from one company to another. Let's take a simple example, a company that authorizes its own board of directors to make this declaration, or if it's a matter, there's no board installed, it needs to go to the general meeting, it's different, right? And even more so looking at the concrete case, different companies can have different realities. Wow, a company is a wholly-owned subsidiary, easy, I approve it whenever I want. Think in the morning, it's a family, everyone is present, no need to call a meeting, there are minority shareholders, I need to call a meeting. Exactly. I have notice periods, deadlines that I have to observe for this, right? So, we can be, and not to get into the merits of it, and here my solidarity is with the accountants who will have to work a lot at the end of the year to prepare special balance sheets within tight deadlines that they are not used to. And it can be different, there might be a company that has a production cycle that allows me to prepare a balance sheet more closely, right? I managed to prepare one for November, one for December 15, that's fine, but in some sectors I might have more practical difficulty in doing this. The company can only prepare a trial balance, a balance sheet from a few months ago. There are companies that may have a cycle, a lower seasonality, a high concentration of revenue in December, for example, so they will have more difficulty in preparing this special balance sheet, pushing the date as far forward as possible, right? So, it really is a matter of attention that, due to these peculiarities, does not allow for a single answer for everyone. The only recommendation for everyone is: whoever wants to avoid being subject to it must distribute now. And a formal distribution. And here, this is not written in the law, but my recommendation, I think we have to be more cautious than usual. Here, I have to, any distribution that is made, even in a simple limited liability company, to surround myself with formalities that allow demonstrating in the future that this deliberation date effectively happened by December 31, 2025, right?
Okay? Before I pass on the questions coming from the chat to Michel as well, I wanted to bring up a point that has come up a lot in meetings and if we recall, about a few weeks ago, I don't remember if it was two or three weeks ago, time is passing and we are losing time with so many discussions we have participated in, right? But in two news outlets, a few weeks ago, there was the same discussion about a controversy, right, that was raised, which is, recalling the profits of controlled companies abroad, what we call PICs, Passive Investment Companies, where the individual holds their assets abroad through an opaque company, which would be the case of the opaque company we are talking about. There is doubt, at least in the market's reading and interpretation, that because the list was nominal and exclusive of what items are excluded from the calculation to reach the R$ 600,000 and R$ 1,200,000, that profits already taxed, right? And I will speak calmly and with confidence here so that everyone doesn't forget this, meaning, profits that if someone adhered to OBEX and paid 8%, which are the profits from 2023, right, were already taxed at 8%, or profits up to 2023 not taxed in OBEX, which are retained there in a separate account as untaxed profits. So, there are two types of profits from 2023, and they can be either from OBEX or not from OBEX. Profits from 2024 already taxed at 15%, and from now on, if there is no future increase in rates, right? We will assume that the current rate is still 15%, future profits taxed at 15%. If, when the taxpayer accesses these profits, which are my profit credits, which are on a line as an asset in my income tax return, in my patrimonial declaration, if there is a positive exchange rate appreciation, this exchange rate variation, would it be part of the calculation to reach R$ 1,600,000? Then we'll talk about the other items that are also in our doubt. We have questions about this here, but this is perhaps what has caused the most discomfort to society. Why? Because the discussion has been, and it emerged in those two articles, I wanted to hear from you here, if you understand that as written, this could be considered double taxation, meaning, it was already taxed at 15% or 8% in the case of OBEX. And then, at the moment I access this money, if not in the current year, right? And in the current year it's difficult, because I calculate on December 31st, I would have to withdraw the money, hoping that the exchange rate on January 2nd, right, because January 1st the market will be closed, but that on January 2nd my exchange rate is equal to or lower than what it closed on December 31st. I wanted to hear from you a bit. And then I'll throw in a bit of the provocation, as I said at the beginning of our opening, that the rapporteur himself, Renan Calheiros, and the other senators who spoke about the bill said they want to make adjustments to the language so that corrections are made. So, it's a question with two paths for your answer. If you can focus on both, one, your legal interpretation regarding this issue of already taxed profits and eventually accessed later, right, by the taxpayer for the use of these resources, if there would be double taxation and if this would be unconstitutional or not. And the other is, if you see that this topic really has room to be altered eventually in one of the bills that were presented yesterday, and today Minister Hoffmann even stated in a publication that there are three projects she will discuss with the senators to see if she can make some changes.
Let's go. I think this is a great question. The fact is, as a general comment, that this law, without prejudice to the legitimacy of the discussion of tax technique, of taxing dividends or not, of redistributing the tax burden, a legitimate political discussion, without entering into personal opinions, but it is a truth that the law has many loopholes, many rough edges that need to be smoothed out, and for me, this is clearly one of them. By determining, by creating this taxation system that considers all income earned by the individual in the period, only admitting express exceptions, the legislator ends up facing the challenge of having to be exhaustive in indicating what these exceptions are. And it left out, in practice, many important cases, and this is one of them. There is no express provision that gains from exchange rate variation related to profits of controlled companies abroad that have already been taxed in Brazil would be protected from taxation. If the dollar goes up, right? I taxed these profits when the dollar was at X, right? And now the dollar is at 10, right? And then I will have a gain when I bring this money here to Brazil, right? Will there be taxation or not, when there is an actual distribution? What do I think here, Will? Regarding your specific question, I think there are very strong legal arguments to defend that there should not be this taxation, because, after all, especially when I deal with OBEX, remembering a special regime that was offered as an option to taxpayers if they wanted to adhere, to anticipate payment under the promise that those amounts would not be taxed again. The law even says something, they will not be taxed, the law is even more emphatic than usual in other matters, so, I think there is an almost contractual nature here to this adherence, this optional regime, no one was obliged to adhere, which was OBEX, right? So, I think providing for this taxation now means changing the rules of the game of a pact that was made back then. It seems to me that we are protected, right? Even for profits calculated up to December 31, 2025, when the law was not in effect, the minimum income tax law, but Law 14754 on offshore investment taxation already provided for its exemption for the future. I also think it gives us very good arguments to defend that they should be exempt from taxation, even for the future. We have a legitimate discussion about which is the specific rule here, whether it's the rule of the offshore taxation law or the other one. And I think the offshore taxation law has specific characteristics and its own logic, as you started to summarize, right? So, I think from a legal point of view, the arguments are very strong. However, it's a shame that this was not explicitly stated in the law, and I hope this point will be corrected along with others to avoid creating distortions that, in my view, would be unconstitutional, right? So, legally, I think it's good, but in practice, we have to be very attentive, because I even sincerely think it's a topic that wouldn't need to be resolved by a new law, it could be resolved even by a regulation that clarified that it's outside. It could even be resolved, imagine, by the interface of the annual adjustment declaration system itself, which would simply not pull these results, presuming they are exempt. And then a question and answer clarification, etc. I think there would be good ways for public administration to resolve this problem, the ideal and safest way would be a change in the law to make it explicit, but also through regulation. I think there is still room for the tax authorities to do this. I don't have much expectation because, unfortunately, in recent years, when we had important changes in income tax taxation, we didn't see them reflected well in the Annual Adjustment declaration program or even in the regulation itself. Just look at Law 1474 on offshore investments. So, honestly, I don't have.
Great hopes regarding this. The reason why I think this adjustment in the law, this operation in the law that has not even been born yet, would be very important. Again, I think the law is very good, but I would like that, in addition to the law, clients, taxpayers, had security so as not to need to fight for their rights, right? All right. Thank you. I wanted to take advantage of this question about what is missing or what is still in doubt. Uh, we had the issue here, right, the law spoke about the exclusion from the tax base of Income Tax, of Withholding Tax, IRPFM, one has to get used to this new nomenclature, right? Ah, so excluded from the base of IRPFM, the issue of donations, right, anticipation of legitimate share, right, and that the donation of the disposable part, it would be uh excluded or not. In your view, I wanted to even connect one question to another, so let's make it clear here, right? The way I think the law, we read "legitimate share" there, but we didn't see "disposable," right? In the discussion of the list of exclusions, which makes up the base for you to reach the calculation of 600,000 up to 1,200,000. And the same thing still in the line of donations, we see here also the issue of insurance. If you could talk a little about this, it would be nice to hear your opinion. If >> I think these topics are great, it's the same essence of the discussion we had about exchange rate variation. By the way, about exchange rate variation, I would also include perhaps a more current example, which would be the exchange rate variation of non-remunerated deposits that are also not taxed, but if there was no express exclusion. And then how does it stand, right? But let's go. Regarding these two points, I think they are very good examples of how we still have holes and technical imperfections in the law. And if the topic of taxation of investments abroad is still a topic that some people are not very familiar with, right? They are new rules. Uh, uh, talking about donations, talking about uh insurance compensation, I think they are topics that are part of almost everyone's life, right? So, uh, uh, uh, they expose these problems of the law in a very clear way. Let's go to each of them, right? The law excludes donations in anticipation of legitimate share from income tax. Now, what is legitimate share, right? Any individual's assets are divided between legitimate share and disposable share, 50% for each side. Legitimate share is that portion of the assets that I cannot dispose of as I wish, considering my estate planning, it must necessarily go to those people whom the law qualifies as necessary heirs. Normally children, if I don't have children, parents, right? And the disposable share is that portion of my assets, half of my assets, that I can leave to whomever I wish, even if they are not my necessary heirs. So, in practice, when the law excludes only donations in anticipation of legitimate share from the tax base, it implicitly leaves out donations that are not anticipations of legitimate share, donations that fall on the disposable portion. And let's give examples to make it clearer. A donation made, uh, by a father to his grandson, for instance, if the children are still alive. A donation made to an uncle by a niece, an aunt to a nephew, a donation made, uh, uh, uh, based on exclusive assets, made by one spouse to the other who is not their heir. So, there are several situations we can think of. And if you ask me, but gosh, can income tax apply to a donation? Obviously not. So, it's a manifest unconstitutionality that I can only imagine was a mistake. I can't even imagine that this would lead to a significant increase in revenue for the government, but it remained, right? And the same applies to the issue of insurance. The law took care to refer to insurance, compensation for patrimonial damages, moral damages, leaving out lost profits. So, insurance that had the purpose of replacing patrimonial damage, insurance, right, for a car, for any asset that suffered a loss, I don't need to receive compensation, I think it's clearly excluded. But I have well-founded doubts about life insurance. Now, that is income. I don't think so. I don't think income tax can apply to that, but it remained poorly worded in the draft of the bill, in the wording of the law. >> Let's look at the questions here, Michel. Let's open up for questions if you want to pass them on. >> Yes. Uh, I was reading here, you know, we're moving towards the last 10 minutes practically, right? And I think that during this last period, many doubts arose, brother. Uh, and I know that somehow there is a lack of regulation, a lack of understanding of how the income tax declaration program will work, right? So, how will the taxpayer know and, you know, what will be the effective rate of that publicly traded company in which he invests, which pays dividends, you know, there are many, there are many instrumental details, right, of how this will be calculated, how the dynamic here works. But, uh, I wanted to hear from you a little, right, you know, and going back to the step-by-step, right, going back to the dividend distribution part, I think there are many doubts regarding the calculation of the reducer, right, you know, uh, wow, I have an effective rate of 34%, will I get a refund, will I not get a refund, right? Uh, uh, and then another doubt that arose a lot here is mine, my legal entity, right, I received R$ 1,000, 50 payments of R$ 1,000, you know, from my legal entity, you know, how does this dynamic of the withholding tax calculation and potential refund or not work together with the minimum income tax, right? >> Let's go. Uh, first, just to make it very clear, although it wasn't specifically asked, legal entities that receive dividends from others are not taxed. Taxation only applies to distributions made to partners/shareholders who are individuals or residents abroad, which is not really our topic here in our debate now, right? So, you know, we are always talking here to emphasize and make it clear for individuals. I have a holding company that participates in three other companies. The profits distributed to the other companies to the holding company are not taxed at source, nor will they have additional taxation at the holding company. But when the holding company distributes the profits to me, to your individual, then I will have this taxation. How does this mechanism work, right? Legal entities in Brazil are taxed, their income, their profit is taxed by two taxes, right? Two taxes, corporate income tax (IRPJ) and social contribution on net profit (CSLL). Added together, 25% + 9% gives us a combined rate of 34%. This is what applies to practically all activities. There are very few activities, financial institutions have higher rates, but let's leave them out here for the benefit of being more objective, right? Let's consider that the standard rate in Brazil is 34% for the taxation of a legal entity's profit. What did the law say, what did it intend to say? Look, if your company already pays an effective income tax rate of 34%, you are exempt from additional taxation on dividends distributed by it. So, it will withhold 10%, but I would return these 10% that were withheld at source on the declared profits to you. The logic here is to say: "Wow, 34% is already a high tax. I don't want you to have, in addition to the 34% on the legal entity's profit, also a 10% tax on the results received, which makes a lot of sense and is fair from an economic point of view. However, the way the law was used to arrive at the calculation of this 34% taxation of the legal entity's profit is what has been the subject of much debate. Why does the law say? Uh, everyone has a rate of 34%, right? It's a nominal rate. The law is talking about an effective rate. What is an effective rate? I take, I make a ratio between how much I paid and how much the company paid in income tax and social contribution in the fiscal year >> and divide it by its net accounting profit. >> What is net accounting profit? It's the profit I calculate in my financial statements before the incidence of taxes and the realization of other provisions. In practice, what is the problem that arises here? Often, and it's very common for this to happen, my accounting profit is not equal to my real profit, my tax profit. My tax profit is often, sometimes higher, but often lower than my net accounting profit. It's the same, brother. But why? Well, uh, a company that has accumulated tax losses uses these losses to offset the formation of its real profit. This is the basis for income tax incidence. A company that is subject to a special tax regime, the presumed profit. For presumed profit, the rate does not apply to the accounting profit. It applies, as the name suggests, excuse the truism here, to a presumed base, which is a percentage of my revenue, 8% for commerce, 32% for service provision. So, you know, I end up having an income tax payment that will be less than 34% of my accounting profit. Companies that have some special tax benefit, uh, accelerated depreciation of some type of asset, that are located in an incentivized region, Sudam, Sudene. So, in all these cases, it can be, and this is a criticism that the government makes and made throughout this process, that despite the nominal rate of Brazilian income tax being high, 34%, high even when compared to the OECD average, it is said that in practice, if we were to look at the effective rate, it would not be so high. The problem is that there would be two ways to address this issue. Either revoke the special regimes, revoke the incentives, which was not done by political choice. That's what happened, or this path that is being taken now, create this taxation on dividends received by individuals, shift this burden to individuals, right? Uh, knowing that there is a provision for a refund, but it will only apply if your effective rate is 34% or close to it. If my effective rate is 30% and I had a 10% tax on the profits received, the difference, the six, I will receive as a refund. How will I know the effective rate? Well, the law says how to calculate it, but I'm not the one who will calculate it. The law provides that legal entities will have an obligation to provide this information to their beneficiaries. I imagine, in the exercise of futurology, that it must be some specific field within the income statement, right, that Fornet must also have a field for the effective rate. Obviously, different companies will have more or less difficulty calculating this effective rate. A company that is unique, has no investments in others, may be easier. Companies that have several investments with different profiles, a holding company subject to taxation under normal rules, right, will also have its difficulties in doing this, but this will be a topic for the controllership, right, of the companies to calculate this amount, but for the individual, it will come, uh, uh, uh, indicated there in one of the fields of the income statement, I believe. Brother, we are Thank you, your explanation is super clear. We are reaching the next end. There are exactly 4 minutes left to finish and we are talking about, let's talk exactly about the 2025 planning, right? I have accumulated profits, whether, right, up to 2024, which I may not have distributed for whatever financial or accounting strategy of my economic group or my company. And I have the profits that will be calculated and eventually I will rush to calculate them by November 30th as an example, by, right, here. And then I did this and I deliberated, right? And then using the principle we discussed, and then each one will have to have their discussion with their lawyers and accountants, especially their lawyers, the issue of S, right? If I could also extend to 2026, 2027, 2028, we will assume that all of this is done and I have all legal certainty looking at it, that I can do this, right? In your view, this anticipation of profit distribution, right? Because I will be anticipating it to avoid paying next year in April, right? Uh, in the case of S, to deliberate and for all companies to close their fiscal year in December. Let's assume I did all of this by the deadline and paid or deliberated by December 31st. In your view, I know it's a difficult question to answer sometimes, but I think this one is easier. Uh, because we have seen past laws alter tax regimes and plans are made beforehand. But I just want to make it clear that this question arises a lot in our meetings. Do you see the tax authorities questioning this as an artificial plan, an abusive tax plan? No, I don't. I don't see it. It's a, it's a shareholder's prerogative to make the distribution, to approve the distribution of profits so that the payment happens in the future. And, by the way, it's common for this to happen. I even think that this provision for the possibility of making the payment in 2025, 2026, 2027, 2028, was welcome. Ideally, it wouldn't even exist, that I could simply declare and protect these past profits. It would be legally correct, but it didn't happen. Uh, so that you are not forced to bleed, excuse me, to use a strong expression here, but that's it, the company's assets to make a distribution that was not foreseen. But if I didn't distribute, if I didn't distribute profits earned up to 2024, up to today, November 2025, which I perhaps didn't want to, didn't need to, or it was important to keep them there. But from the moment a new tax was created on the distribution of these amounts, there came an incentive for me to proceed with this distribution, and the law itself authorized me to do it in the following fiscal year. So, I don't think there's any problem, right? >> All right. Well, and one last one, I don't want to, I left it for last, but I'm sure, I'm comfortable, but I want to hear from you too, that you see here, I haven't seen it, but I want to hear from you. Any impact or increase in tax with regard to foreign subsidiaries and other investments, that is, my investments abroad. Do you see that >> not with this law. Now, the government has shown that it is interested in looking into this. We had this year the provisional measure 133, which was the provisional measure that was presented as compensation when the government thought it would have a defeat on the issue of increasing IOF, which was not approved last month in the, right, in the Chamber of Deputies. Uh, >> it was October 8th. >> Exactly, which provided for an increase in the rate to apply to investments in onshore financial applications, right, in Brazil, but also for, uh, income from foreign sources, financial applications abroad. So, the government said it wanted to tax, right? Often, these tax increases do not happen immediately. The automatic profit investment taxation was signaled in 2013, approved in 2023. >> Exactly. >> FIP taxation was in 2017, approved in 2023, now it was signaled in 2025. So, uh, I'm not saying it will happen, I don't want to be pessimistic, but I think we have to be realistic. The government wanted to, signaled this intention. >> And if, just to make it clear here before we finish, uh, if an alteration is made, and suggestions in the bill or in the bills being discussed today in the Senate, as we mentioned before, and they are approved and sanctioned by December 31st, then in this case, the profits accrued from 2026 onwards would be impacted by this new rate, right? Or from 2025 as well, right? Yes, yes, yes, yes. >> Not from 2025. Right. >> All right. We have reached here, I want >> for this new taxation, a parallel topic we are discussing, not dividend taxation and minimum income tax. That's it. >> Wonderful. Well, respecting the time of our audience, I would like to thank Hermano, Michel, and each of you who are with us. I want to leave a very important message for you: please, if you have any doubts or questions, uh, contact your commercial teams to get in touch with us. Our wealth planning team, of. Uh, the time here is, right, time is essence. we need to have the diligence to look from now until the end of the year and make the necessary evaluations and planning for the execution of these tasks. Ah, because we have little time until the end of the year. So, I leave here the reflection and the invitation, if necessary, to seek us out. Thank you again to each of you. Hermano, Michel, brother, I don't know if you want to say goodbye here, I don't want to log off before you give the last word, please. It's a huge pleasure to be here with you. I thank all those present and especially, right, you and Michel for the invitation. It was great to collaborate here in this debate on such a new and complex topic. Great, thank you. Thank you, Will. Thank you to the audience. It was excellent, Hermano, thank you for all the clarifications, >> everyone. Thank you. See you next time. So, soon we will have news, you know, to make it clear to everyone here in the audience as well that it is super important that, even after the law is sanctioned, we still need to have the supplementary regulations, right, normative instructions, eventual interpretive acts, in short, other regulations that the regulatory and supervisory body, which is the Federal Revenue Service of Brazil, as always, right, the law lays down the basic guidelines and the details come in the supplementary regulations. So, I think it's very important, uh, we have some, we saw several questions in our list of questions that we cannot answer because of this. They are not being addressed because we need them in the supplementary regulation. And remembering here, we followed closely in 2023, right, in Law 14754. The normative instruction only came in 2024, right? Uh, so we need to wait for the regulations now, but again, here is the reflection and invitation, if necessary, to discuss the topic, we are at the disposal of ladies and gentlemen to talk about planning and the necessary steps. Thank you and have a good day to all and a good weekend. Yeah.