Key Developments
The Consumption Tax Reform introduced new concepts into the Brazilian tax system, including the notions of “transactions involving goods and services,” “supply,” “consideration,” and “taxpayer status” for purposes of the levy of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS).
Historically, cost-sharing contractual structures were built on the premise that the mere allocation of expenses among entities within the same economic group, without markup, without profit intent, and without characterization as a service provision would not constitute a taxable event for consumption taxes. This rationale was developed under PIS and COFINS (Brazilian federal social contributions on revenue) and ISS (Brazilian municipal services tax)regimes, albeit with significant administrative and judicial controversies.
With the enactment of Supplementary Law No. 214/2025 (LC No. 214/2025), a relevant conceptual challenge arises regarding the classification of cost-sharing agreements: defining the limits between mere internal cost allocation and the characterization of a taxable supply. The absence of profit is, by itself, no longer a decisive criterion, while the concept of “economic activity” may be interpreted more broadly.
Introduction
Cost-sharing agreements are entered into by companies within the same economic group. Although not expressly provided for by statute, they are classified as atypical contracts, as authorized by Article 425 of the Brazilian Civil Code (CC/2002), provided that the following requirements are met:
i. Objective criteria for the allocation of expenses advanced by the centralizing company for the benefit of all other group entities.
ii. Absence of profit intent, whereby each company’s reimbursement must correspond to the proportion of the benefit individually expected and enjoyed.
iii. Evidence that the expenses incurred are made available to all group companies, carried out internally, with proper documentation of reimbursement.
iv. The purpose of merely reducing and optimizing common costs related exclusively to auxiliary activities (back office).
Tax Scenario
Domestic cost-sharing
In domestic arrangements (where both the centralizing company and the other group entities are domiciled in Brazil), the Brazilian Federal Revenue Service (RFB) generally recognizes the validity of the contractual structure with the following effects:
i. Reimbursements do not constitute revenue of the centralizing company and therefore are not included in the calculation basis of PIS and COFINS.
ii. Reimbursements correspond to operating expenses of the centralizing company, which may be deducted from IRPJ (Brazilian Corporate Income Tax) and CSLL (Social Contribution on Net Profits) calculation basis.
International cost-sharing
In cross-border arrangements (where the centralizing company is domiciled abroad), there is significant resistance to recognizing the contractual structure. In such cases, the RFB usually classifies remittances abroad as consideration for the provision of services. As a result, PIS, COFINS, Withholding Income Tax (IRRF), and potentially CIDE may apply.
Impacts and Changes
LC No. 214/2025 introduced new concepts into the tax system that may create challenges in maintaining cost-sharing agreements outside the scope of IBS and CBS. In this context, we highlight:
i. Transactions: Equated to legal transactions as defined in Article 104 of the Civil Code (CC/2002).
ii. Service: A residual concept within transactions involving goods — encompassing any transaction not classified as the supply of goods (cf. Article 3, I, “a” and “b”).
iii. Consideration: Taxable transactions do not depend on profit; it suffices that there is consideration of any kind for the supply of goods or services (cf. Article 4, §1, III).
iv. Taxpayer: A supplier that carries out transactions in the course of economic activity, on a habitual basis or in a volume that characterizes economic activity or professional practice.
v. Supplier: An individual or legal entity that, whether resident or domiciled in Brazil or abroad, carries out a supply (cf. Article 1, III).
vi. Supply: Delivery of or provision of tangible goods; institution, transfer, assignment, concession, licensing or making available tangible goods, including rights; or provision or making available of services (cf. Article 1, II).
vii. Taxable event under the dual VAT model: Taxation of both onerous and non-onerous transactions (in the latter case, where expressly provided by LC), irrespective of the legal title, type or legal form of the structure adopted (cf. Article 4, §3).
Key Takeaways
The absence of specific rules addressing cost-sharing may undermine the objectives of neutrality, simplicity, and legal certainty, potentially increasing litigation and conflicts between taxpayers and tax authorities, given the likelihood of divergent interpretations and inconsistencies regarding the legal nature of such arrangements.
Therefore, regulatory clarity and coordinated action by the Federal Revenue Service and the IBS Steering Committee will be essential to mitigate the impacts of the legislative changes on this type of structure, especially in light of the significant litigation observed under the tax system in force prior to the Consumption Tax Reform.
*This content was prepared with the collaboration of law clerk Luiza Nordi.
Watch our video for an in-depth analysis of this topic: https://youtu.be/3Z8e5-9qTu4
