Superior Tribunal de Justiça rules on Interest on Equity tax deduction

The First Panel of the Superior Tribunal de Justiça (STJ) ruled on a precedent regarding the tax deduction limit for Interest on Equity (JCP). The court ruled in favor of the food company Piraquê, overturning a tax assessment by the National Treasury.

The dispute centered on a specific provision from 1995-1996 that allowed companies to capitalize JCP directly into their social capital rather than paying shareholders in cash. The National Treasury argued that the Withholding Income Tax (IRRF) assumed by the company should be included when calculating the 50% net profit limit for JCP. However, the STJ determined that the legal ceiling for the deduction must be calculated before the application of the IRRF.

This ruling addresses a unique period in Brazilian tax law governed by Law 9.249/1995, which was repealed shortly after. The decision clarifies how companies can manage the tax benefits associated with JCP while increasing their equity value.