The Brazilian Supreme Court, in the recent judgment of Extraordinary Appeal No. 612.686, decided that the Income Tax (IRRF) and Social Contributions on Net Income (CSLL) are levied on revenues from financial investments and on the results of closed-end complementary pension funds. The topic was judged to have general repercussion. Therefore, the decision will serve as obligatory orientation for the lower courts.

According to the reporting Justice Dias Toffoli, although the closed private pension entities are non-profit organizations and do not technically assess profits or losses, but surpluses or deficits, they would not be exempt from being subject to the Income Tax or CSLL on such results. In other words, the fact of not having a profit-making purpose does not prevent them from having patrimonial gains and increases, which, in turn, give rise to tax incidence.

This is because, according to the rapporteur, both the income from financial investments and the positive results earned by closed complementary pension funds fit what is the legal concept of income, profit or patrimonial increase. Thus, these taxable events were considered as the basis for the Income Tax and the CSLL, to the exact extent that “the Federal Constitution does not require that the taxpayer necessarily have a profit motive in order to be taxed”, in the words of the Justice.

Thus, it was decided that, in the absence of applicable tax immunity, even non-profit entities, in case they execute the taxable event of such positive results, may be recognized as taxpayers of such taxes.

In view of all the above, for purposes of general repercussion, the following thesis was established: “The collection of Income Tax  (IRRF) and Social Contribution on Net Income (CSLL) from non-immune closed complementary pension funds is constitutional.”