Brazil: Superior Court of Justice rules that corporate income tax and CSLL apply on interest obtained from judicial depositsJune 18, 2013
On 22 May 2013, the Superior Court of Justice (Superior Tribunal de Justiça – STJ) gave its decision in the case of Fazenda Nacional vs Cia Hering (the decision was published on 31 May 2013).
The STJ ruled that corporate income tax and the social contribution on net profits (Contribuição Social Sobre o Lucro Líquido – CSLL) can be charged on interest derived from judicial deposits, as well as on interest earned when the taxpayer is reimbursed for undue tax payments.
Details of the decision are summarized below.
The case concerns an appeal filed by the Federal Republic of Brazil (Fazenda Nacional) to amend a decision issued by the Court of Appeals, which allowed the taxpayer (Cia Hering) to exclude, from the calculation of its corporate income tax, the values regarding interest calculated according to the SELIC index when judicial deposits were reimbursed after the taxpayer succeeded in a tax claim (Law 9,703/98), and when the Revenue reimbursed the taxpayer for amounts unduly paid concerning taxes.
The position of the Federal Republic of Brazil was that interest was not indemnification (which is tax exempt) but part of the taxpayer’s revenue.
The issue is whether interest earned on judicial deposits and on undue tax payments that are reimbursed to the taxpayer is subject to corporate income tax and CSLL.
The STJ ruled in favour of the Federal Republic of Brazil. According to the reporting judge, interest on judicial deposits and on undue tax payments reimbursed to the taxpayer belong to the latter and are part of their revenues; therefore, they should be subject to tax.
The only exception would be when the principal amount is not subject to tax.
Therefore, corporate taxes can be charged on interest derived from judicial deposits, as well as on interest earned when the taxpayer is reimbursed for undue tax payments.
Note. In the case of tax claims that are in dispute, taxpayers must provide a guarantee on the disputed debt in order to obtain tax clearance certificates, which are essential to run a business in Brazil.
Tax clearance certificates cannot be obtained without guarantee. In this regard, a judicial deposit, where the value is deposited in a bank account belonging to the court, is one of the forms of guarantee foreseen in the Tax Code.
If the taxpayer succeeds in his tax claim, the amount deposited as guarantee is reimbursed and the interest on that amount is calculated by the SELIC index.
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