Tax Law Highlights | Brazil’s Tax on Financial Transactions (IOF) Issues

1. Updates in Evidence:

This edition of Tax Law Highlights addresses Decrees No. 12,466, 12,467, and 12,499, published in May and June 2025, which, in summary, increased the rates of the Tax on Financial Transactions (IOF) on a range of insurance, credit, and foreign exchange transactions. It also examines the ongoing judicial scrutiny following the resulting tax burden increases.

2. Introduction:

Decrees No. 12,466, 12,467, and 12,499/2025 introduced significant changes to the IOF taxation framework, particularly impacting the following transactions:

(i) credit transactions between legal entities;

(ii) supplier financing and payment advances (“forfaiting” or “reverse factoring”); and

(iii) foreign exchange transactions related to short-term foreign loans.

At the judicial level, Constitutional Declaratory Action (ADC) No. 96 and Direct Actions of Unconstitutionality (ADIs) Nos. 7,827 and 7,839 challenge the limits of the Executive Branch’s regulatory authority under Article 153, §1 of the Brazilian Federal Constitution.

3. Tax Landscape:

The enactment of Decrees No. 12,466, 12,467, and 12,499/2025 reflects the Brazilian Federal Government’s broader effort to ensure fiscal balance and safeguard tax revenues. This underscores the critical importance for taxpayers to closely monitor real-time legislative developments in tax matters, enabling proper assessment of potential business impacts.

4. Repercussions and Changes:

Except for the reclassification of “reverse factoring” transactions as credit operations—achieved through the inclusion of paragraphs 15, 23, and 24 to Article 7 of Decree No. 6,306/2007 by Decrees No. 12,466/2025, 12,467/2025, and 12,499/2025—the remaining changes, including the increase in IOF rates and the redefinition of criteria for characterizing “short-term” foreign loans, became effective upon the reinstatement of the legal force of the referred Decrees.

5. What conclusions can we draw?

Pursuant to Article 153, §1 of the Brazilian Federal Constitution, only the IOF tax rate may be altered by decree. Any attempt to modify other elements of the legal-tax relationship that results in an indirect increase in taxation exceeds constitutional limits.

*This content was produced with the participation of law clerk Francisco Spinelli.

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