Brazil's Supreme Court (STF) reached a majority on Thursday (27) in favor of charging corporate income tax (IRPJ) and the social contribution on net profit (CSLL) over profits earned by mining company Vale through controlled companies based abroad. The trial is taking place in the court's virtual plenary, began last week and runs until this Friday (28), according to Folha de S.Paulo, which carried a Reuters report by Ricardo Brito.

As of Thursday evening, six justices had voted to allow the taxes to apply to the profits of Vale subsidiaries headquartered in Belgium, Denmark and Luxembourg. The majority was opened by a divergent vote from Justice Gilmar Mendes, joined by Cármen Lúcia, Flávio Dino, Cristiano Zanin, Kássio Nunes Marques and Alexandre de Moraes.

Mendes granted the federal government's appeal to, in his words, "recognize the possibility of counting as positive equity growth the profits earned by its controlled companies headquartered in Belgium, Denmark and Luxembourg". His vote relied on an earlier precedent of the court, case RE 541.090, which admitted taxation of profits of foreign controlled and affiliated companies even when they were not based in tax havens.

"Therefore, applying what was decided by the plenary of this court in RE 541.090, I understand the case warrants recognizing the possibility of charging IRPJ and CSLL over the parent company's profit obtained through controlled companies located abroad", Mendes wrote.

The case at a glance

The dispute reached the Supreme Court in March 2015 and has drawn attention from the business community because of the amounts involved. In a technical note from February 2023 cited by Mendes, Brazil's tax authority, the Receita Federal, estimated the financial impact of the issue at R$ 142.5 billion for the years 2017 to 2021, plus R$ 28.5 billion for each following year. Valor Econômico reported that the impact for the federal government in case of defeat was calculated at R$ 22 billion in the fiscal risks annex of the 2026 Budget Guidelines Law (LDO).

Timeline of the case so far:

• March 2015: the federal government's appeal reaches the STF;
• February 2023: a Receita Federal technical note estimates an impact of R$ 142.5 billion;
• Last week: the virtual plenary window for the trial opens;
• August 27, 2026: six justices form a majority in favor of taxation.

Vale declined to comment on the trial. The Attorney General's Office (AGU) and the National Treasury Attorney's Office (PGFN), which represent the tax authorities in the case, did not immediately answer requests for comment, according to Reuters.

The next procedural step comes this Friday (28), when the virtual voting window closes. Until then, justices may change their votes or request a "destaque", a move that would send the case to be discussed again in an in-person plenary session.