Tax overhaul makes family holding companies less attractive
The income tax overhaul proposal makes it less advantageous to adopt a family holding company for estate and succession planning. There will be an increase in taxation with a charge on dividends, in addition to the early payment of the tax, which will be levied even before the distribution of profits.Holding companies are used today for the tax advantages they offer through corporate taxation. They are structures set up to manage, for instance, real estate, including rural properties, and investments abroad.By the text sent to Congress, however, they could lose attractiveness. One key change concerns investment abroad, mainly in tax havens. In this case, the main change is the moment of taxation.The bill proposes that profits from stakes in companies controlled abroad will be considered available to the controlling individual residing in Brazil on the date of the balance sheet they have been calculated and will have to pay income tax when the controlled company is based in a tax haven.Luiz Felipe Ferraz, with law firm Mattos Filho, says that there was already a provision in this sense in Provisional Measure 627 of 2014, which ended up being left out in the conversion into law. âThere is a very big change at the time of taxation,â he said, adding that the issue is likely to generate much discussion in Congress.Mr. Ferraz explains that taxation, according to the bill, occurs in the year in which the profit is calculated, even if it is distributed many years later. âIn some cases, you will tax before the individual actually receives it,â the tax lawyer said.The change, says Luciano Ogawa, partner of Ogawa, Lazzeroti e Baraldi Advogados, creates a âfictitious taxation.â As a rule, he said, individuals are taxed at the time of actual payment, and the bill considers distributed profit that was only calculated. âIt is similar to what the Secretariat of Federal Revenue is trying to do for companies with controlled firms and affiliates abroad,â he said.He recalls that, for companies on the accrual basis, the Federal Supreme Court (STF) has already ruled that the measure is constitutional. The case dealt with controlled companies based in tax havens. âThis taxation is in line with the OECD [Organization for Economic Cooperation and Development] guidelines. It is a worldwide trend, it is not an absurd measure,â he said.The companies abroad, says Joanna Rezende, a partner at law firm Velloza Advogados Associados, are not structured only for tax...
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