Based on the thesis that tax breaks granted by federated states are investment aids, a company in the state of Rio Grande do Norte received a unanimous decision in its favor in the Superior Council of the Administrative Court of Tax Appeals (CARF) in what concerns the tax base of Corporate Income Tax (CIT).

As a beneficiary of State VAT tax breaks granted by local authorities under strict control of its investments in that state, the company hired loans whose revenue it did not include in the tax base of CIT, understanding they were reflexes of an investment aid. Investment aids, according to CIT regulation, are not taxable income.

Questioned by federal tax authorities on the argument that the revenue arising from tax breaks would only be excluded from CIT tax base if it was applied directly to fixed assets of financial investments - what, according to the federal tax authorities, did not happen, since the loans and special taxation regimes were only a support to floating capital in the company – the taxpayer presented an appeal that was fully confirmed in the highest administrative instance of federal taxes.

This decision is promising for countless taxpayers that enjoy special tax treatment granted by the federated states outside of the National Council of Tax Policies (Confaz), since that kind of benefit from the "fiscal war" between states is what moves many companies to certain areas of the country.

Seizing opportunities - Newsletter Brazil - Issue: March 2015

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