Keywords: Brazilian Internal Revenue Service, Resolution of Divergence No. 8/2014, income tax, services, deemed profit,

The Brazilian Internal Revenue Service (IRS), through Resolution of Divergence No. 8/2014, has recently reformed and unified its understanding regarding the taxation of services provided abroad by Brazilian legal entities under the Deemed Profit regime, which determines the taxable income based on fixed rates applicable to the gross revenue. According to such Resolution, the legal entity that provides services abroad cannot offset the income tax paid in the contracting country in order to reduce the income tax due in Brazil, unless an agreement to avoid double taxation had been signed between Brazil and the country abroad and depending on the terms of the agreement.

This Resolution reformed the decision issued trough Formal Consultation No.159/2013, which allowed the companies under the Deemed Profit regime to deduct, from the income tax calculated in Brazil, the tax levied abroad on the revenues related to the supply of services.

Notwithstanding Brazilian IRS's understanding, we understand that there are good grounds to defend the offset of the income tax paid abroad even in the cases in which no agreement to avoid the double taxation had been signed.

We remain at your entire disposal to provide any clarification that might be required.

Originally published 10 September 2014

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Founded in 2001, Tauil & Chequer Advogados is a full service law firm with approximately 90 lawyers and offices in Rio de Janeiro, São Paulo and Vitória. T&C represents local and international businesses on their domestic and cross-border activities and offers clients the full range of legal services including: corporate and M&A; debt and equity capital markets; banking and finance; employment and benefits; environmental; intellectual property; litigation and dispute resolution; restructuring, bankruptcy and insolvency; tax; and real estate. The firm has a particularly strong and longstanding presence in the energy, oil and gas and infrastructure industries as well as with pension and investment funds. In December 2009, T&C entered into an agreement to operate in association with Mayer Brown LLP and become "Tauil & Chequer Advogados in association with Mayer Brown LLP."

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.