When inquired on the apparent conflict between the application of rule on taxation of profits earned abroad (Section 74 of Provisory Act No. 2,158-35/2001) and international treaties to avoid double taxation, tax authorities issued an Internal Answer to Inquiry Cosit No. 18, of August 8, 2013, concluding that there is no conflict between these rules.
According to the orientation of the IRS, the internal rule – Provisory Act 2,158-35/2001 – applies to Brazilian taxpayers, so there is no conflict with international treaties. Besides that, the triggering event of the tax, under this circumstance, is the profit earned by Brazilian partners, since under the method of equity equivalence and the accrual principle, what matters for the economic availability does not depend on the distribution.
Finally, authorities emphasized that the Brazilian legislation grants to a foreign company that invests in Brazil the right to compare the tax paid abroad in order to avoid double taxation, as provided by international treaties concerning tax matters.
(Internal Answer to Inquiry Cosit No. 18, 08.08.2013, Official Gazette of 08.13.2013. Available at: http://www.receita.fazenda.gov.br/publico/Legislacao/SolucoesConsulta/2013/Cosit/SCICosit182013.pdf . Accessed in August, 2013).