Guide to m&a tax 2021

d. Hybrid Instruments
Hybrid instruments are instruments that can be classified as either debt or equity, as well as instruments that have different natures in different jurisdictions.
In Brazil, the INE is an example of “hybrid instrument” which, as stated above, consists of a deduction available to legal entities for remunerating shareholders on the 
capital invested, according to the Brazilian long-term interest rate (TJLP), and considering the limits imposed by the Brazilian legislation in force.
e. Other Instruments
Shareholders can also be remunerated by means of dividend distributions, which are currently exempt from WHT. However, as mentioned above, the proposed 
bill of Tax Reform under the analysis of the Brazilian Congress resumes the taxation of dividends (CIT and WHT).
f. 
Earn-outs
Earn-outs are quite common in M&A transactions in Brazil. However, because they are treated as installments conditioned to a future event, the 
amount of the earn-out can impact the capital gains calculation and the potential goodwill generated on the transaction, which ultimately 
impacts the amount of corporate income tax to be assessed.
TAXAND GLOBAL GUIDE TO M&A TAX 2021
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BRAZIL

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7. DIVESTITURES
As discussed above, the sale of assets or shares may potentially generate a capital gain taxable to the seller, equal to the excess in Brazilian currency of the sales price 
in relation to the acquisition cost (or basis) of the disposed shares or assets in the hands of the seller.
When the capital gain is realised by a Brazilian legal entity, it is subject to CIT at a combined nominal rate of 34%. When the capital gain is realised by a Brazilian tax 
resident individual or non-resident investor, the capital gain is subject to progressive rates ranging from 15% to 22.5%, or 25% if they are resident or domiciled in a tax 
haven jurisdiction.
It is important to emphasise that the method for determination of the acquisition cost basis of a non-resident investor or tax resident individual is not completely clear, 
being subject to different interpretations.
8. FOREIGN OPERATIONS OF A DOMESTIC TARGET