Sale of shares through an Investment Fund
In the judgment passed on September 12, of 2018, the 2nd Panel of the 2nd Chamber of the 2nd Section of the Federal Administrative Court of Tax Appeals (“CARF”), unanimously granted a taxpayer appeal accepting the sale of shares through an investment fund (“IF”).
This precedent involved an individual shareholder that before the sale their shares transferred them to an IF. The Brazilian Federal Revenue Service (“RFB”) claimed that the transfer of shares had the sole purpose to decrease the tax impact (in this case, by the rate of 15% over the capital gain), whose payment occurs only when the IFs quotas are redeemed.
The defense argued that the IF had effectively purchased the shares, since it had the financial resources previously contributed by the taxpayer and other quotaholder. Moreover, it was argued that the purchaser demanded that the IF should be the sole owner of all shares, evidencing in this way, a business purpose unrelated to tax planning.
It is important to highlight the great subjectivity concerning the requirements for the use of an IF by the RFB.
On other hand, on August 10, 2018, reviewing a similar case involving an IF, CARF’ 2nd Panel of the 4th Chamber of the 2ª Section decided, by the casting vote (being the tiebreaker vote issued by RFB’ representative), against the taxpayer.
The main argument, in this case, was the fact that the shares’ sale by an IF granted a tax saving, as opposed of a sale by the individual taxpayer and other legal entity that also held shares, despite the absence of a legal barrier.
It is possible to note the high level of subjectivity in the judgment of each cases and in the understanding of the topic by CARF itself, mainly about when the transaction is covered or not by legal requirements allowing the sale of shares by an IF.
Both of cases decisions’ will soon be published and, probably, will be object of appeal to the High Administrative Chamber of Tax Appeals (CSRF), which will face the discussion for the first time and, hopefully, provide a clear path for future transactions involving such vehicle.
Please, if necessary, contact us for further clarifications:
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