Brazil profit taxation law faces 'compulsory loan' legal challenges

Law 15.270/2025, which imposes a 10% tax on the distribution of profits and dividends exceeding R$ 50,000, is facing legal challenges in Brazil. Tax experts and judicial decisions have raised the argument that the mechanism acts as an illegitimate "compulsory loan" to the Union.

Under the law, which took effect on January 1, 2025, a 10% monthly withholding is applied at the source. However, because the actual annual tax rate can range from 0% to 10% based on total annual income, many taxpayers will be entitled to refunds. Critics argue that since these excess funds are only returned the following year without interest, the practice effectively provides interest-free financing to the government.

The legislation, intended to offset income tax exemptions for those earning up to R$ 5,000, is currently being questioned in at least six actions before the Supreme Federal Court. Recently, a judge from the Federal Regional Court of the 4th Region (TRF-4) supported the thesis, stating that requiring advance payments of amounts presumed to be undue violates the principle of contributory capacity.