The current dividend taxation model adopted by Brazil exempts the national entrepreneur from paying tax on the amounts received as distribution of profits earned by Brazilian companies. However, this does not mean that the profit earned by legal entities based in Brazil is now exempt from taxation. On the contrary, in general, such entities are taxed up to 34% (thirty-four percent) on their results, as income tax and social contribution on net profit.

In this context, and under the political pretext of the need for tax reform to oxygenate the economy and reduce the hole in the public coffers, the discussion (both among congressmen and the Brazilian business community) has intensified around the modification of this tax exemption model for dividends.

Under the motto of reestablishing a minimum of fiscal justice in the country and bringing national tax practices in line with the best and newest trends practiced by the most developed countries on the planet, the return of taxation on dividends (which until the mid-1990s was practiced at a rate of 15% in Brazil) seems to enjoy the approval of the majority of the economists in charge of the electoral campaigns of the candidates who are leading the race for the Planalto.

However, from a legal and economic standpoint, such approval is in check, if we consider the immediate and immediate impacts that such a proposal may generate for the business sector, especially for those directly involved in the Brazilian capital market.

When it comes to the business community in general, the impacts of an eventual legal change could be lessened, because one can already see legal maneuvers such as corporate reorganizations, tax planning, expansion of the use of interest on own capital, among others, to enable the remuneration of partners and shareholders in a less taxing way.

Regarding the capital market in a specific way, economic studies show that immediate effects can be seen in the pricing of companies listed on the Brazilian stock exchange, due to the drop in the expectation of return on investments in such companies as a result of direct taxation of future dividends.

In addition, the feeling of loss, by the business sector, of a kind of acquired right as to the current tax exemption may discourage investments and the entrance of new players in the Brazilian market, at least on the local horizon where the discussed taxation would be effective.

It remains, then, to wait for the results of the electoral race and the political unfolding of this imbroglio to eventually define which corporate solutions are the most appropriate for a new legislative reality that, under the premise of invigorating the Brazilian economic scenario, may directly impact the daily life of Brazilian businessmen.

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