Global Tax Alert (News from Americas Tax Center) | 11 November 2013

Brazilian IRS Top Tier Department issues conflict resolution ruling on shared services

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Due to the latest federal administrative case law and contrasting private rulings issued by different sectors across Brazil, the General Coordination of Taxation (COSIT) issued an administrative ruling1 advising taxpayers and tax auditors on the Corporate Income Tax (CIT) and Pis/Cofins rules applicable to shared services costs and expense apportionment. The ruling standardizes the Brazilian IRS interpretation of CIT and Pis/Cofins rules applicable for shared services reimbursement.

Corporate Income Tax

The ruling increases taxpayers' comfort level to execute cost sharing agreements, clarifying that it is possible to concentrate, in a sole entity, expenditures control related to core support services (e.g., human resources, accounting, legal, among others). The ruling explains that the expenditures may later be apportioned to the group of entities that benefit from the services.

It also clarifies that the deduction of said expenditures for CIT purposes are possible as long as the expenditures are:

i) Considered necessary, normal and usual for the group entities business

ii) Paid and properly supported by any available documentation

iii) Calculated based on reasonable and rational apportionment criteria, previously set forth in a formalized instrument signed by the parties

iv) Related to the actual expenditures incurred by each company, consistent to the global price paid by the goods or services acquired by the shared services center

Additionally, each company should deduct from its CIT basis only the expenditures allocated to it in accordance with the apportionment criteria previously established between the parties. However, the shared services center should book the amounts to be recovered from the other entities benefiting from the shared services.

All companies should keep a proper bookkeeping of all the acts directly related to the expenditures apportionment.


Another relevant controversial aspect settled by the conflict resolution ruling relates to Pis/Cofins. The Brazilian IRS now recognizes that reimbursements paid in accordance with the above provisions should not be considered as taxable revenues for Pis/Cofins purposes at the shared service center level, provided that no mark-up is included in the portion paid by each company.

Moreover, if the payor is subject to the Pis/Cofins non-cumulative regime, it should recognize only the credits arising strictly from the apportioned expenditures attributable to it. Consequently, the shared services center should breakdown for each entity undertaking the centralized services the items that compose its corresponding apportioned expenditures portion, in order to enable the precise identification of those items that are allowed to generate Pis/Cofins credits.

Finally, it is important to bear in mind that starting from September 2013 onwards, all tax rulings and conflict resolutions issued by COSIT are considered applicable to all taxpayers from the date of publication. Therefore, the above comments are deemed automatically applicable to all taxpayers, even to those that have not previously filed a ruling, or those that still have not started to apportion common costs and expenses within the same economical group.


1. Conflict resolution n. 23/2013 of 14 October 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Serviços Tributários S.S., Business Tax Services, São Paulo
  • Eliezer Serafini
    +55 11 2573 3704
  • Eneas Moreira
    +55 11 2573 3117
Ernst & Young Serviços Tributários S.S., Global Compliance and Reporting, São Paulo
  • Ricardo Gomes
    +55 11 2573 3348
  • Claudio Yano
    +55 11 2573 3310
Ernst & Young Serviços Tributários S.S., International Tax Services, São Paulo
  • Luiz Sergio F. Vieira
    +55 11 2573 3571
Ernst & Young Serviços Tributários S.S., International Tax Services, Rio de Janeiro
  • Sergio Andre
    +55 21 3263 7236
Ernst & Young LLP, Brazilian Tax Desk, New York
  • Ingrid Berner
    +1 212 773 2539
Ernst & Young LLP (United Kingdom), Brazilian Tax Desk, London
  • Felipe Fortes
    +44 755 228 2520

EYG no. CM3951