On 30 November 2023 and 5 December 2023, Brazil’s Valor Econômico newspaper published a report stating that the Ministry of Finance of Brazil has completed the draft of a new proposal to amend the Interest on Net Equity (INE) mechanism.
The document outlines several fundamental changes, including:
- an increase in the withholding tax (WHT) rate from 15% to 20%;
- a 50% limit on the deduction of the current year’s profit;
- a restriction on calculating the payment of INE retroactively, and
- modifications to the calculation basis that involve excluding certain items from the net equity amount.
As per the publication, a new draft of the proposal was created for incorporating it into Provisional Measure (PM) 1,185. The PM pertains to investment incentives and went into effect from 1 January 2024 after approval from concerned authorities. This approach signifies a shift in the government’s strategy to eliminate INE as a repatriation option. The plan was previously proposed in a bill of law on 31 August 2023.
According to the newspaper, the government plans to impose these limitations to stop “abusive tax planning” through various INE-related mechanisms.
These include:
- Equity increases that do not effectively bring assets into the company
- Goodwill for future profitability
- Intangible assets or granted options
The proposed Interest on Net Equity draft must be approved by the Chamber of Deputies and the Senate by 31 December 2023 to go into effect in 2024.
