On January 23, 2026, the Brazilian Federal Revenue Service ("RFB") published Interpretative Declaratory Act ("ADI") No. 1/2026, which addresses the use of taxes paid abroad by directly or indirectly controlled or affiliated entities, for purposes of deducting the Corporate Income Tax ("IRPJ") and the Social Contribution on Net Profit ("CSLL") due by controlling or affiliated companies in Brazil.
More specifically, ADI No. 1/2026 provides that the deduction of taxes paid abroad must observe the following rules:
- The amount may only be used to deduct IRPJ/CSLL due in Brazil levied on the portion of the adjustment to the investment value in a directly or indirectly controlled or affiliated company domiciled abroad, corresponding to the profits earned by such entity (cf. Article 2, caput).
- The use of this amount is expressly prohibited, under any circumstances, for:
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- Offsetting against other taxes managed by the RFB pursuant to Article 74 of Law No. 9,430/1996 (cf. Article 2, I); and
- Deduction or offset against IRPJ/CSLL amounts due as monthly estimated payments (cf. Article 2, II).
- The amount of the deduction may not exceed the amount of IRPJ/CSLL due by the controlling or affiliated company in Brazil for the relevant assessment period (cf. Article 3, caput). This limit, pursuant to Article 30, §11 of RFB Normative Instruction No. 1,520/2014, is calculated before the offset of accumulated tax losses in Brazil relating to prior calendar years.
- In this context, any difference identified between the limit for utilization of the tax paid abroad and the tax due after such offset may not result in a negative IRPJ/CSLL balance, and must be recorded in Part B of the income tax book ("LALUR") for use in subsequent assessment periods (cf. Article 3, §§1 and 2).
Accordingly, ADI No. 1/2026 consolidated the RFB's unfavorable position regarding the controversy over the possibility of offsetting taxes paid abroad by a controlled or affiliated company against IRPJ/CSLL monthly estimated payments under any circumstances, including with respect to balances arising from prior calendar years and controlled in Part B of the LALUR. Under this interpretation, taxes paid abroad may be used to deduct IRPJ/CSLL due only at the end of the assessment period.
Furthermore, it should be emphasized that the act expressly prohibits the generation of a negative IRPJ/CSLL balance resulting from the use of taxes paid abroad by a controlled or affiliated company and, consequently, their offset against other federal taxes.
Nevertheless, the restrictions imposed by the RFB call into question the compatibility of the interpretation consolidated by ADI No. 1/2026 with current legislation, as well as the impact of this new guidance on tax audits - including for periods prior to its publication, given its interpretative nature - and on decisions at the administrative level.
In light of the potential controversies and the repercussions of this measure, we recommend that our clients carefully assess the impacts of ADI No. 1/2026.
We remain available to discuss the possible effects of this new interpretation and other tax matters of interest.
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