Taxation on the Appreciation of Mutual Funds’ Shares Held by Corporate Investors

Withholding Tax v. Accrual Method

Abstract

This article investigates whether a Brazilian corporation subject to the actual profits regime of income taxation should include in its IRPJ and CSLL tax base the appreciation of mutual funds’ shares it holds prior to any realization event. This issue is relevant due to several administrative rulings reached by the Brazilian Federal Tax Authority between 2014 and 2019, which point out that the accrual method applicable to corporations requires share appreciation to be promptly taxed regardless of liquidation. By the end of the article, it will be demonstrated that this understanding is legally incorrect, and that the conclusion reached by the Brazilian Federal Administrative Tax Court should prevail, so unrealized gain or losses related to mutual funds’ shares should only be taxed or deducted after their disposition.