Alana Aiche do Carmo Dahrouj
Lawyer at Marcos Martins Advogados
The distribution of profits is a common practice and is authorized by the Civil Code. It is possible for the partners of a limited liability company to agree that the division should be made disproportionately to their participation in the share capital.
Even if the distribution of profits occurs disproportionately, the exemption from Income Tax must be maintained, and this understanding of the Federal Revenue Service itself is recorded in Consultation Solution Disit 6 – No. 46 of May 24, 2010, in which the following pronouncement is noted:
Profits distributed to shareholders in a manner disproportionate to their participation in the share capital are covered by the exemption, provided that such distribution is duly stipulated by the parties in the articles of association, in accordance with corporate legislation.
Despite this understanding, a case came before the Administrative Council for Tax Appeals (CARF) in which a company was fined for distributing profits to some of its partners above the limit of their shareholdings.
In that case, the tax authorities considered that the “amounts received in excess of the participation in the capital cannot be considered as remuneration of the capital, and there is no support in the applicable legislation for this surplus to be treated as exempt income, not subject to the taxes due by the natural person, as a taxpayer of Income Tax”.
However, in the judgment of the case, CARF decided that there was no irregularity in the disproportionate distribution established in the company’s articles of association, concluding that income tax was not levied.
The decision recognized that this practice has legal support (Art. 1.007 of the Civil Code) and that there are situations that justify this procedure, as one of the partners may be entitled to a greater share of the profits, since it contributes more significantly to increasing the company’s profits.
Marcos Martins Advogados makes its tax team available to answer any questions on this subject.
