Mergers and acquisitions: Brazilian tax benefit on the payment of goodwill on acquisition of equity interest



The Brazilian tax legislation has a tax benefit for the amortisation or depreciation of the goodwill paid on the acquisition of equity interest of Brazilian companies. This tax incentive was introduced by Law No. 9532, of 10 December 1997 (Law 9532/97), in order to foster the privatisation of public companies of energy, telecommunication and other sectors of the Brazilian economy. This tax benefit encompasses the possibility of deducting the expenses related to the amortisation or depreciation of goodwill for the purposes of ascertaining corporate income tax and social contribution on net profits.

The tax benefit related to goodwill is applicable for the acquisition of companies (public or private), as long as: (i) the goodwill is justified on economic grounds (surplus value of assets, future profitability or other economic reasons); and (ii) the acquired company is merged with the company that paid the goodwill, or vice versa (also applicable for consolidation or spin-off).

In view of the large number of transactions involving the utilisation of this tax benefit, as well as the huge amounts involved in those transactions in recent years, the tax authorities have been paying special attention to it.

In this respect, Brazilian tax authorities challenged several transactions arguing lack of business purpose or abuse of legal form, which resulted in several discussions in the Brazilian administrative courts about the use of this tax benefit. Administrative jurisprudence has not been consolidated, and the decisions vary according to the factual aspects of each transaction, depending on the economic justification for the acquisition of equity interest with the payment of goodwill.

Unfavourable precedents arise in the event of transactions between related parties, with successive corporate acts in a short period, where the new company is use as the acquisition vehicle, with the transfer of goodwill between entities or without proper proof of purchase payments or documents.

It is also worth noting that the Brazilian accounting standards changed in 2008, after the enactment of the Law No. 11,638 of 28 December, 2007 (2007). This modification of Brazilian accounting rules was related to the international convergence of accounting standards.

The new accounting standards modified the register of the goodwill paid, without changing the tax benefit related to such goodwill, pursuant to Law No. 11,941 of 27 May 2009 (Law 11,941/09).

Discussions about the utilisation of tax benefits related to goodwill in connection with alterations in the Brazilian accounting rules gives us the background to understand the new rules for the depreciation and amortisation of goodwill recently enacted in Brazil.

New rules for the depreciation and amortisation of goodwill

Considering the new Brazilian accounting standards and Administrative Court discussions on the acquisition of equity interest with payment of goodwill, new rules were introduced by Law No. 12,973 of 13 May 2014 (Law 12,973/14). The new rules are applicable for acquisitions conducted as of 1 January 2015. The old rules (i.e., Law 9532/97) are valid for acquisitions occurring until 31 December 2014, as long as the merger, consolidation or spin-off takes place up until 31 December 2017.

In the event of equity investments with the payment of goodwill occurring up until 31 December 2014, which depend on approval from regulatory and inspection bodies for implementation, the period of merger may be up to 12 months from the date of approval of the transaction.

The new rules, for equity investments made after 1 January 2015, establish that the value of investment in equity interest should be segregated in the following accounts: (i) net equity; (ii) surplus value of assets, which is the difference between the fair value of net assets and the net equity of the invested company; and (iii) future profitability goodwill, which corresponds to the residual value that cannot be included in items (i) or (ii).

The foregoing amounts shall be recorded in separate subaccounts, and the amount of surplus value of assets should be based on a report prepared by an independent expert. This report must be filed with the Federal Revenue or have the summary recorded in the Registry of Deeds and Documents by the tenth working day of the thirteenth month following the acquisition of the equity investment. The tax authorities may disregard the report only if the data contained therein demonstrably presents defects or inaccuracies of a relevant nature.

In the event of a merger, consolidation or spin-off of the invested company, the remaining balance in the accounts relating to the surplus value of assets arising from the acquisition of equity interests between non-dependent parts can be considered as part of the cost of the asset or right which gave cause for the purposes of determining a gain or capital loss and calculating depreciation, amortisation or depletion. The future profitability goodwill can be amortised at the rate of 1/60, maximum, for each month of the verification period.

The tax benefit on the goodwill is only applicable if the transaction is performed between non-dependent parts. The following are considered dependent parties: (i) the buyer and the seller are controlled, directly or indirectly, by the same party or parties; (ii) if there exists any control relationship between the buyer and the seller; (iii) the seller is a partner, owner, director or manager of the acquiring entity or the seller is a relative or married within a third degree of such people; or (iv) in the event of other relationships not described above, provided that corporate dependence is evident.

Thus, the main characteristics of new rules for the tax benefit related to goodwill are as follows: (i) the acquisition of equity with the payment of goodwill must be between non-dependent parties; and (ii) the report will base the surplus value of assets, being the residual value of goodwill allocated as future profitability goodwill.

We understand that the new rules for the tax benefit related to goodwill should decrease the number of discussions in the Administrative Court related to the depreciation or amortisation of goodwill, considering that the new requirements provided by the law take into account the facts and aspects already analysed in previous administrative judgments.


Christiano Chagas is a partner, and André Novaski and Roberto Casarini are associates, at Soares Bumachar Chagas Barros Advogados. Mr Chagas can be contacted on +55 11 4064 4942 or by email: Mr Novaski can be contacted on +55 11 4064 4951 or by email: Mr Casarini can be contacted on +55 11 4064 4960 or by email:

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Christiano Chagas, André Novaski and Roberto Casarini

Soares Bumachar Chagas Barros Advogados

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