Brazil Court Majority Backs Foreign Profits Tax in Vale Case

Brazil · TAX

A formed majority in Vale’s foreign profits tax case still falls short of a final ruling.

Brazil’s Supreme Court has formed a majority to allow the foreign profits tax on earnings of overseas subsidiaries. The vote came in a virtual session that closes on 28 August 2026.

What the Supreme Court is deciding

The Supremo Tribunal Federal (STF), Brazil’s Supreme Federal Court, is judging Recurso Extraordinário 870.214. That is an extraordinary appeal brought by the federal government against the miner Vale.

The court is voting in a virtual plenary, where justices post written votes online instead of meeting. The session opened on 21 August 2026 and closes on 28 August.

The reporting justice, called the relator in Brazil, is André Mendonça. He inherited a fight that has run through the courts for over a decade.

The appeal carries no repercussão geral, the status that binds lower courts to a Supreme Court result. Its outcome will guide, but not automatically govern, other foreign profits tax disputes.

The rule at the heart of the case

The disputed rule is Article 74 of Medida Provisória (MP) 2.158-35 of 2001, a provisional measure with force of law. It reaches corporate income tax, or IRPJ, and the social contribution on net profit, known as CSLL.

Article 74 treated the profits of a foreign subsidiary as available to its Brazilian parent at once. Availability was fixed on the balance sheet date, so Brazil taxed the parent before any dividend crossed the border.

Companies called that a levy on income belonging to a separate legal person abroad. The government called it a measure of the Brazilian parent’s own growing wealth.

Congress later changed course. Law 12.973 of 2014 revoked Article 74 and built a new regime for years from 2015.

How the justices have voted so far

On 27 August 2026 the score stood at six votes to four for the foreign profits tax. The count was reported by Estadão Conteúdo and carried across Brazil.

Gilmar Mendes opened the winning line and framed the levy as falling on the Brazilian investor. He wrote: quem está sendo tributado é a empresa investidora brasileira.

In English: the one being taxed is the Brazilian investing company. On that reading the treaty rule never comes into play.

Kássio Nunes Marques, Alexandre de Moraes, Cristiano Zanin, Flávio Dino and Cármen Lúcia followed him. The relator voted the other way, and Luiz Fux joined him.

Mendonça held that the dispute turns on ordinary law rather than the Constitution. Dias Toffoli opened a third line, allowing tax only on the Bermuda unit.

A majority is not a final ruling

A majority formed inside a virtual session is provisional, and any justice may call a destaque. That pulls the case into the in-person plenary, where the judgment starts again from zero.

A pedido de vista, a request for more time to study the file, can also suspend the case. It has already been halted five times that way.

Those requests came from Gilmar Mendes, Alexandre de Moraes, Kássio Nunes Marques, Luiz Fux and Dias Toffoli. The judgment began in 2024 and is now in its third year.

Why Brazil’s tax treaties are the core

Brazil has double taxation agreements, or tax treaties, with dozens of countries. They split taxing rights so the same income is not taxed twice.

Article 7 of those treaties says business profits are taxed where the company operates. The exception is a permanent establishment in the other country.

Vale controls Rio Doce Internacional in Belgium and Rio Doce Comércio Internacional in Denmark. Brasilux and Rio Doce Europa sit in Luxembourg, and all three states hold treaties.

A fifth unit, Brasamerican Limited, is registered in Bermuda, which has no such treaty. Tax on that one was already cleared by the lower courts.

Article 98 of the Código Tributário Nacional, Brazil’s tax code, gives treaties priority over ordinary tax law. That article is the taxpayer’s strongest weapon in the foreign profits tax fight.

What the court decided back in 2013

In April 2013 the STF proclaimed its result in Ação Direta de Inconstitucionalidade (ADI) 2.588. An ADI is a direct challenge to the constitutionality of a law.

The case had been filed by the Confederação Nacional da Indústria (CNI), Brazil’s national industry confederation. Six justices produced a binding but partial answer.

They upheld Article 74 for controlled units in tax havens. They struck it down for affiliates in countries with normal taxation.

No majority formed on the two remaining combinations. The court also voided the clause that reached back to profits earned up to 2001.

The same session settled two appeals, RE 611.586 and RE 541.090. In the second, involving Embraco, the treaty question went back to the lower court.

The money and the caseload

The Receita Federal, Brazil’s revenue service, values this case at R$22 billion (US$4.26 billion). That covers one year of unpaid tax plus refunds for five earlier years.

The number is an estimate, not an assessed debt, and no public breakdown supports it. Vale has not published its own figure.

A Receita note from February 2023 put the wider exposure at R$142.5 billion (US$27.6 billion). That covers 2017 to 2021, with R$28.5 billion (US$5.52 billion) a year thereafter.

Those conversions use the Banco Central do Brasil PTAX venda rate, the official closing sell rate. It stood at R$5.1642 per US dollar on 27 August 2026, the latest published.

Reactions and what other companies face

Vale declined to comment on 27 August 2026, when the majority became public. The Advocacia-Geral da União (AGU), the federal solicitor general, did not reply at once.

The Procuradoria-Geral da Fazenda Nacional (PGFN), the treasury’s legal arm, says the profit belongs to the Brazilian parent. On that basis it argues the treaty rule simply does not apply.

Fábio Lunardini of Peixoto & Cury Advogados set out the taxpayer case in March 2025. Treaty profits, he noted, are taxable only in the state where the company sits.

Thulio Alves of Loeser e Hadad Advogados warned in the same month about the trade-off. A win for the treasury, he said, could hurt the global competitiveness of Brazilian firms.

In the Conselho Administrativo de Recursos Fiscais (CARF), the federal tax appeals board, the government usually wins. A Supreme Court nod would harden that record and reshape foreign profits tax planning.

Frequently Asked Questions

Sources

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