Income Tax and Social Contribution on Presumed Profits in Real Estate Exchanges

Abstract

In 2014, Brazilian Federal Revenue Office issued a normative opinion stating that the value of a real property received in an exchange operation by a company on presumed income regime shall be recognized as income, therefore shall be taxed (income tax and social contribution).
The reasoning is set on the matching between selling and exchange agreements by civil law and also in the definition of income under the repealed section 31 of Law Nr. 8,981/95.
This work tests the accuracy of Federal Revenue’s reasoning in order to check whether under Brazilian Law the exchange transaction, historically neutral given its social importance, suffers taxation under the mooted hypothesis.
Towards such goal this essay progresses through the concept of income in the Tax Law, the “ability to pay principle”, the reach of private law and the use of analogies in Tax Law and in the accounting science. Finally, we reject Federal Revenue’s understanding.