BRAZIL may find that an increase of two taxes in 1999 was unconstitutional, requiring refunds of as much as $5.17 billion.
The taxes are a social security tax called COFINS and a separate levy called PIS that funds a savings program for employees. The COFINS tax was 2% of a company’s gross receipts from sales of goods and services.
The rate was increased to 3% and extended to other types of income — for example, interest and currency gains — in 1999. The PIS tax is 0.65% of the same tax base.
The country’s second highest court found in early March that expansion of the tax base beyond operating income was unconstitutional. The Supreme Court heard an appeal. Three of the 11 Supreme Court justices have found the changes were legal. The fourth justice to vote has asked for more time. The other justices are expected to render their decisions in late April. A decision against the government could require large tax refunds back to 1999 and reduce tax collections
In a separate development, the Brazilian tax authorities issued a “normative” on March 17 implementing new rules that
require tax withholding when nonresidents sell assets in Brazil. The new withholding rate is 15%. However, it jumps to 25% when the seller is a company or other resident in a tax haven.