TAX REFORM: Complementary Law No. 227/2026

On January 14, 2026, Complementary Law 227 (“CL 227/2026” or the “Complementary Law”) was published, containing the additional regulation of the Tax Reform on Consumption. In summary, L 227/2026 sets forth rules on the administration and enforcement of the Goods and Services Tax (“IBS”) and the Contribution on Goods and Services (“CBS”), as well as on the levy of the Inheritance and Donation Tax (“ITCMD”) and the Excise Tax (“IS”).

CL 227/2026 is divided into three books addressing the following subjects:

• Book I: Administration and management of the IBS, including the establishment of the Managing Committee (“CG-IBS”), provisions on the Administrative Tax Proceeding, rules relating to the collection and distribution of tax proceeds, special and specific regimes, and transition rules for the termination of the ICMS and ISS;
• Book II : General rules of the ITCMD, including changes to enforcement and procedures; and
• Book III : Amendments to legislation, eliminating legislative conflicts and aligning the existing tax system to the new model.

In addition, the Complementary Law addresses:

• Rules for the distribution of IBS collection proceeds and retained revenue, as well as distribution and allocation rules;
• Transition rules for ICMS and for input tax credit balances (Article 132);
• Administrative, non-tax penalties related to tax remittance under Split Payment (Article 471-D);
• Establishment of a National Tax Compliance Program (Articles 471-A, 471-B and 471-C);
• Specific rules for the Manaus Free Trade Zone and Free Trade Areas; and
• Amendments to CL 214/2025.  

Our Tax Team has summarized below the main aspects of the Law that it considers relevant:

IBS Managing Committee (CB-IBS)

The Complementary Law sets forth the powers of the CG-IBS as the central body that (i) regulates and interprets the IBS legislation; (ii) collects and distributes the tax; (iii) adjudicates all administrative disputes; and (iv) coordinates integration among the federative entities.

The Committee shall (i) work jointly with the federal Executive Branch, with a view to harmonizing rules, interpretations, ancillary obligations, and procedures related to the common rules applicable to the IBS and the CBS; (ii) share, on a cooperative and reciprocal basis, with the Special Secretariat of the Brazilian Federal Revenue Service (RFB) and with the Office of the Attorney General of the National Treasury (PGFN), information on fiscal and collection interest related to the IBS and the CBS; (iii) exercise shared management, together with the RFB, of the system for recording the commencement and the outcome of IBS and CBS audits; (iv) together with the RFB, it shall establish the methodology for determining input tax credits in transactions in which the taxpayer is the purchaser of fuels, in cases where proof of payment of the IBS on the acquisition is waived for purposes of credit appropriation; and (v) issue acts exclusively or jointly with the federal Executive Branch, in the cases provided for in the Complementary Law.

The CGIBS, the RFB, and the PGFN may implement integrated solutions for the administration and collection of the IBS and the CBS.

The CGIBS will also be the body responsible for issuing the Single Regulation, which will (i) define the maximum term for performing administrative collection activities; (ii) establish applicable judicial or extrajudicial collection rules; (iii) set uniform rules on tax compliance, guidance, self-regularization, and differentiated treatment for taxpayers that adhere to IBS compliance programs; (iv) define criteria for audit authority and co-authority; and (v) establish programs to encourage tax citizenship.

CL 227/2026 provides that the rules common to the IBS and CBS contained in this regulation will be approved by a joint act of the CG-IBS and the federal Executive Branch.

Regarding the composition of the Committee, the following bodies are created and their mandates detailed:

• Superior Council (highest decision-making body);
• Presidency and Vice-Presidency;
• Executive Board and its directorates;
• Office of the Secretary-General;
• Office of Institutional and Interfederative Relations;
• Internal Affairs Office (Corregedoria); and
• Internal Audit.

The Superior Council will have the authority to publish IBS rates applicable to specific regimes, as well as to approve the methodology and calculation of the reference rate.

The Complementary Law also creates transparency instruments for the CG-IBS, including a bimonthly summary report of budget execution, a four-month fiscal management report, and monthly public access reports, in addition to annual statements comprising the balance sheet, statement of changes in equity, statement of cash flows, budget balance, and financial balance.

Administrative Litigation

The administrative procedure will be fully electronic, and deadlines will be counted in business days. In addition, the Complementary Law establishes a 20-day term to challenge an infraction notice and institutes a judicial recess aligned with that of the judiciary from December 20 to January 20.

Administrative litigation will be conducted in three levels, with representation of states and municipalities.

The parties may also file a motion to rectify a decision issued by any administrative level within five days to correct material error, eliminate contradictions or obscurities, or solve omissions concerning issues that should have been decided.

The Complementary Law establish a procedure for standardization of decisions, which allows repetitive issues or conflicting decisions to be brought before the Superior Council. As a consequence, the application of IBS would have binding effects throughout the country.

The Complementary Law also provides for a summary procedure for simple or low-value cases under which the first level decision concludes the administrative proceeding, except in certain cases. 

Penalties

The Complementary Law establishes infractions and penalties relating to IBS and CBS and provides that any act or omission that entails noncompliance by the taxpayer with a principal or ancillary tax obligation constitutes an infraction, even if unintentional.

IN case of tax assessments, a 75% fine applies to undeclared tax, underpaid tax, or improperly used credits. This penalty is increased to 100% in cases of evasion, fraud, sham, or collusion and 150% in the event of recidivism in any of these practices within three years.

Mitigation provisions are also included, such as a reduction of the fine to 50% where the taxpayer correctly declares all characteristics of the transaction, notwithstanding an error in the tax calculation.

In addition, noncompliance with ancillary obligations of IBS and CBS subjects the taxpayer to fines.

Transition: ICMS Credit Balances

The Complementary Law provides that ICMS credit balances existing on December 31, 2032 will remain, be recognized, and be adjusted for inflation for future use.

The requirements for recognition of such credit balances are that they:

• Be permitted under state or federal district legislation in force on December 31, 2032 and arise from transactions carried out up to that date;
• Are duly calculated in the establishment’s tax books, even if recorded subsequently;
• Have not been used or offset by the taxpayer by December 31, 2032; and
• Are duly approved, including when recognition results from final administrative decisions or final and unappealable judicial decisions.

Once approved, the credit balances may be:

• Offset against ICMS, upon agreement by the taxing entity and the taxpayer;
• Offset against IBS via CG-IBS, beginning in the month following receipt of the information, with such offsetting carried out at the same pace and for the same remaining period applicable prior to the extinction of the ICMS, in the case of credits arising from the acquisition of fixed assets, or in up to 240 equal and consecutive monthly installments for ordinary credits;
• Transferred to third parties or parties within the same corporate group for offset against ICMS or IBS; or
• Refunded in cash by the CG-IBS, in up to 240 monthly installments, with payment within 90 days after the end of the month in which the respective offset would have taken place and adjusted by the Selic rate in the event of late payment.

As from February 1, 2033, credit balances will be adjusted according to the monthly variation of the IPCA since December 2032 or any index that replaces it.

General Rules of the ITCMD

The Law introduced systemic changes to the general rules of the ITCMD, especially regarding the incidence of the tax on gifts and succession.

Specifically:

• Excess of spousal share or its share is deemed excessive when, in the division of assets arising from probate, divorce, or dissolution of a stable union or co-ownership, one of the spouses, partners, or heirs receives assets exceeding the legal fraction to which they would be entitled. The excess portion is characterized as a gift for ITCMD purposes.
• For purposes of the tax, related parties include those between whom an indirect or simulated donationmay occur, encompassing (i) a spouse or partner; (ii) relatives by blood or affinity up to the third degree; (iii) legal entities managed by individuals related to the heir or recipient; and (iv) legal entities in which the beneficiary is a shareholder, owner, or quota holder.
• Assets or rights, for ITCMD purposes, include any assets with economic value.
• Transfer causa mortis corresponds to the transfer of assets to successors on the date of death, even if presumed. The rule expressly includes the gratuitous reversion to the beneficiary of assets and rights held in a foreign trust as a result of the settlor’s death.
• Those subject to ITCMD as successors include heirs, legatees, fiduciaries, fiduciary commissioner , beneficiaries, or any individual or legal entity receiving assets or rights transferred due to death.
• Gifts encompass any gratuitous transfer of assets or rights.
• Items not deemed gifts are (i) benefits arising from a legal duty, such as support and essential family expenses; (ii) remuneration for services or remunerative liberalities; and (iii) indemnities, refunds of undue amounts, or returns of undue profits.
• Nonprofit institutions of public and social relevance include entities that do not distribute profits for any reason, and which are dedicated to promoting fundamental rights or social or environmental policies, generating probably immunities and tax benefits.
• A trust is a contractual arrangement defined under Law No. 14,754/2023 that is recognized for tax levyin the context of succession and gifts.

With respect to the taxable event, it is established that ITCMD applies to any gratuitous transfer with economic value, including fiduciary structures and trusts. Also, the CL determines that each heir/donee is a distinct taxpayer and that the taxable event upon death occurs on the date of death, regardless of the opening of probate.

The CL also enumerates tax immunities and non-levy situations.

The immunities include:

• Where the successor or recipient is immune;
• Where the object transferred is immune; or
• In the case of purpose-bound donations.

The non-levy situations include:

• Pure and simple waivers, without conditions or reservations, of an inheritance or legacy, without any prior act of acceptance;
• When a usufruct (or similar real right) terminates and full title reverts to the grantor of the right;
• In the case of benefits received under private pension plans (open or closed), life insurance, lump-sum death benefits, or other onerous products;
• Upon termination of the fideicommissum (fideicomisso), regardless of whether the asset passes to the fiduciary or to the fideicommissary;
• When assets are transferred to the trustee or from the trustee to the beneficiary, except where the transfer is gratuitous; and
• When the transfer results from the death of a foreign official of a diplomatic mission or consular post, or any financially dependent persons of the official.

The Complementary Law also defines the progression of tax rates, which may not exceed the ceiling set by the Federal Senate, as are the taxpayers, audit rules, and the tax base, which must correspond to the market value of the asset or right transferred.

In the case of donations of quotas or shares, the ITCMD tax base must correspond to:

• The closing quotation on the business day preceding the valuation date, when the quotas or shares are traded on securities markets active in the 90 days preceding the valuation; and
• At least the shareholders’ equity adjusted to fair market value, plus goodwill, in other cases.

The Supplementary Law amends the National Tax Code regarding the ITBI, by redefining and broadening the normative contours of the tax levied on transfers for consideration of real estate.

Excise Tax (IS)

The CL establishes the inclusion of an excise tax (“IS”) in the ICMS calculation basis as of January 1, 2027, and sets a maximum rate of 0.25% for transactions involving extracted mineral goods.

The Complementary Law determines that IS rates on tobacco products, alcoholic beverages, and sugar-sweetened beverages will be established on a staggered basis.

IBS and CBS on Investment Funds

Although investment funds are not IBS/CBS taxpayers, the Complementary Law sets conditions under which Real Estate Investment Funds (“FII”) and Investment Funds in Agribusiness Productive Chains (“Fiagro”) will likewise not be characterized as such. In particular:

• Transactions must involve real estate;
• Quotas must be admitted to trading exclusively on stock exchanges or organized over-the-counter markets, with at least 100 quota holders; and
• The law implements several restrictions: (i) no individual quota holder may hold 20% or more of the total quotas issued; (ii) no family concentration of quotas amounting to 40% or more of the total quotas issued by the fund; and (iii) no quota holder who, alone or jointly, is an affiliated company, controlled company, or controlling shareholder holding more than 50% of the quotas, except where the quota holder is a closed pension fund entity.

Furthermore, it is noted that Credit Rights Investment Funds (“FIDC”) will be taxed by IBS and CBS, as will other funds that anticipate receivables but are not characterized as investment entities.

Main amendments to CL 214/2025

Among the amendments to CL 214/2025 introduced by CL 227/2026, the following stand out:

• It extends tax benefits already provided under the Special Incentive Regime for Infrastructure Development (Reidi) to projects classified under Rehidro (low-carbon hydrogen), provided the specific rules of the incentive law are observed;
• It excludes the application of differentiated regimes to international purchases made under the Simplified Taxation Regime, except for the import, by an individual for personal use, of medicines;
• It includes information security and cybersecurity services in the list subject to a 60% rate reduction, provided they have at least 20% Brazilian capital (with specification of the relevant NBS classifications); and
• It reduces the IBS and CBS rate to zero for medicines regulated by Anvisa intended for (i) rare diseases; (ii) neglected diseases; (iii) oncology; (iv) diabetes; (v) HIV/AIDS and STIs; (vi) cardiovascular diseases; and (vii) the Popular Pharmacy program. A rate of zero also applies when medicines are (i) purchased by the the governament; (ii) purchased by Cebas-certified entities operating within SUS ; or (iii) classified as serums or vaccines.

The Complementary Law provides that:

• The government may adjust presumed credit percentages for purchases from non-registered rural producers according to product type, economic size, and producer category;
• Gasoline and diesel “cut” components are included in the Specific Fuel Regime;
• Considers payment arrangements—including transactions by scheme sponsors and payment institutions—the early settlement (prepayment) of receivables arising from such arrangements, and the administration of loyalty programs to constitute financial services, and provides that participants in payment arrangements and entities that administer loyalty programs that are not payment institutions are subject to the Specific Regime for Financial Services. ;
• Allows the deduction from revenues derived from credit, foreign exchange, securities, securitization, and factoring transactions of losses arising from default, assignments/sales of receivables, and market‑value discounts, provided they comply with the income tax rules.;
• IBS and CBS rates applicable to transactions involving FGTS will gradually increase from 2027 to 2033, eventually reaching 3%;
• When the importer is a taxpayer that performs typical financial operations, the import of the service will be subject to a rate of zero, but the expense may be deducted from the IBS and CBS tax base;
• The zero rate will not apply where the imported financial service is acquired from a related party to the extent the value exceeds prices and rates practiced at arm’s length; and
• From 2027 to 2033, financial services will be taxed at increasing IBS and CBS rates, from 10.85% to 12.5%, with automatic reduction where ISS also applies.

*This content was produced with the participation of law clerks Lara Aguilar and Isabella Cotrik.