The 2nd Panel of the Superior Court of Justice (STJ) unanimously ruled that Corporate Income Tax (IRPJ) and the Social Contribution on Net Profit (CSLL) are levied on late payment interest received by legal entities due to delays in the fulfillment of contractual obligations.
The decision was rendered in Special Appeal No. 1,703,600, under the rapporteurship of Justice José Afrânio Vilela, who held that such late payment interest constitutes loss of profits, and therefore must be included in the tax base for the levies applicable to corporate profits.
Grounds of the Decision
According to the rapporteur, late payment interest does not qualify as compensation for actual damages but rather as remuneration for capital that was not received in a timely manner. As such, it constitutes an increase in patrimony subject to taxation by IRPJ and CSLL.
“Late payment interest received by legal entities due to the delay in the performance of contractual obligations subject to taxation, given their nature as loss of profits, are subject to IRPJ and CSLL,” the Justice emphasized in his opinion.
Practical Implications for Companies
With this interpretation, the STJ dismisses any claim of exemption or non-incidence regarding such amounts, affirming that late payment interest forms part of a company’s taxable profit and is therefore subject to the tax regime applicable to the entity’s corporate structure (Actual Profit, Deemed Profit, or Arbitrated Profit).
Key Considerations:
- The decision reinforces the position already expressed by the Brazilian Federal Revenue Service (RFB) in binding rulings regarding the taxation of late payment interest in favor of the taxpayer.
- Companies should reassess their accounting and tax practices related to the treatment of interest on arrears.
- Any strategy for judicial or administrative credit recovery must take this precedent into account.
It is advisable that companies—particularly those under the Actual or Deemed Profit regime—conduct a thorough review of the origin and allocation of late payment interest amounts, in order to prevent tax contingencies and potential assessments by the Federal Revenue Service.