STF Forms Majority to Allow Brazil to Tax Profits Attributed from Foreign Subsidiaries

Overview

• The Supreme Federal Court reached a majority in favor of permitting IRPJ and CSLL on profits attributed to Brazilian parents from controlled foreign subsidiaries, with the vote count reported as 6–4 and the final decision awaiting the vote of President Edson Fachin.
• The majority reasoned that the Método da Equivalência Patrimonial (MEP) treats foreign subsidiary profits as an increase in the Brazilian investor's patrimony, so those gains are taxable in Brazil before any distribution abroad.
• The bloc that created the majority was opened by Gilmar Mendes and joined by Alexandre de Moraes, Flávio Dino, Cármen Lúcia, Cristiano Zanin and Kassio Nunes Marques, while relator André Mendonça and Luiz Fux opposed the Union's appeal and Dias Toffoli offered a narrower view limited to Bermuda.
• Officials cited large fiscal stakes in the debate: the 2026 budget guide (LDO) puts a R$22 billion exposure for the Union and a 2023 Receita Federal note estimated R$142.5 billion for 2017–2021 and R$28.5 billion annually going forward.
• If the majority is confirmed, the ruling will create a binding precedent that raises tax risk for multinationals with Brazilian parents, reshape disputes in administrative bodies and courts over treaty limits and MEP assessments, and leave the Bermuda case treated differently because it lacks a double-taxation treaty.