Brazil protects tax incentives from its Pillar Two minimum tax
Understand how Normative Instruction No. 2,342/2026 allows tax incentives backed by local substance to reduce or eliminate Brazil's Pillar Two top-up tax for multinational groups.
By Fernanda de Almeida Prado Sampaio, Alice Maldonade Bryan, Bernardo Barbosa Cunha
Brazil's Federal Revenue Service has issued Normative Instruction RFB No. 2,342, dated September 15, 2026, amending Normative Instruction RFB No. 2,228/2024, which governs the Additional CSLL, Brazil's version of the Pillar Two global minimum tax. The key change prevents tax incentives tied to genuine economic activity from being offset by this tax. Multinationals operating in Brazil should review their incentives in 2026.
Pillar Two is an OECD and G20 initiative. It requires multinational groups with consolidated revenues of at least EUR 750 million, in two of the four preceding years, to bear an effective tax rate of at least 15% on profits in each jurisdiction where they operate. Brazil adopted the model through Law No. 15,079/2024, which created the Additional CSLL. The tax works as a top-up: if the group's effective tax rate in Brazil falls below 15%, Brazil collects the shortfall as a qualified domestic minimum top-up tax, ahead of other jurisdictions. Payment is due by the last business day of the seventh month after the fiscal year ends.
The effective tax rate is the tax paid divided by profits calculated under the Pillar Two rules. In Brazil, that tax consists essentially of corporate income tax (IRPJ) and the social contribution on net profits (CSLL). Therefore, incentives on these taxes lower the effective rate and may push it below 15%. Without a specific rule, part of the benefit would effectively be clawed back through the Additional CSLL.
In January 2026, the OECD approved the Side-by-Side Package, which provides guidance on this issue. Following Public Consultation RFB No. 1/2026, Normative Instruction No. 2,342/2026 incorporates this solution into Brazilian law through new Articles 143-A to 143-L of Normative Instruction No. 2,228/2024. Under this Substance-based Tax Incentive Safe Harbor, a group may treat a Qualified Tax Incentive (QTI) as tax paid, thereby raising the effective rate and reducing or eliminating the Additional CSLL.
A QTI must reduce IRPJ or CSLL and be based on either expenditure or production. Expenditure-based incentives must have a direct link to the incentivized investment and cannot exceed the amount spent. They may take the form of credits, enhanced deductions, exemptions, or reduced rates. Production-based incentives depend on the quantity of goods produced in Brazil, rather than the value of those goods. Incentives on other taxes or on income excluded from the calculation do not qualify, nor do general subsidies and grants. The same applies to benefits available only to in-scope Pillar Two groups, granted at the government's discretion, or merely defer tax, such as accelerated depreciation.
The relief is capped at the lower of the QTI used in the year and the Substance Cap. As a general rule, the cap equals 5.5% of the greater of eligible payroll costs and the depreciation of eligible tangible assets. Under a five-year election, the group may instead use 1% of the carrying value of those assets, excluding land and non-depreciable assets. The cap applies to all QTIs on an aggregate basis. The safe harbor requires an annual election by the group's filing entity and applies to fiscal years beginning on or after January 1, 2026.
In Brazil, R&D incentives under Lei do Bem (Law No. 11,196/2005), computed on research spending, are the principal candidates. SUDAM and SUDENE incentives may also qualify, depending on the type of benefit and its link to expenditure or production.
The Normative Instruction also amends the Transitional CbCR Safe Harbor, which deems the Additional CSLL to be zero for groups that meet the simplified tests. It now covers fiscal years beginning on or before December 31, 2027, and ending on or before June 30, 2029. Under the simplified effective tax rate test, the minimum is 16% for 2025 and 17% for 2026 and 2027.
In-scope groups should map their incentives and test whether those incentives qualify as QTIs. They should also calculate the Substance Cap and model the effective tax rate with and without applying the safe harbor before making the annual election.