On 18 December 2024, the Brazilian Congress approved Bill of Law 3,817, which implements Pillar Two rules in the country. The Bill of Law introduces a Qualified Domestic Minimum Top-up Tax (QDMTT) but does not include the Income Inclusion Rules (IIR) or the Undertaxed Payments Rule (UTPR). The Brazilian QDMTT rules are largely aligned with the Global anti-Base Erosion (GloBE) Model Rules and are scheduled to take effect for fiscal years starting on or after 1 January 2025. It remains unclear whether Brazil plans to implement the IIR or UTPR in the future.

The QDMTT was introduced as an Additional Social Contribution on Net Profit ("Adicional da CSLL," in Portuguese). According to Brazilian Federal Constitution, Social Contributions levied on profits may only become effective following a minimum term of 90 days as from the publication of the Law. Questions arise as to whether the calculation of the Top-Up tax, in such case, should be done proportionally.

The Brazilian Government had used two strategies to ensure that legislation is passed as soon as possible, namely the Bill of Law and the Provisional Measure No.1,262 published in October 2024 (see EY Global Tax Alert, Brazilian Government publishes Provisional Measure introducing OECD Pillar Two rules, dated 4 October 2024), which contained the same text. With the approval of the Bill of Law, the Provisional Measure is no longer required and may now be rejected by Congress.

In this context, the Congress has not made significant changes to the text proposed by the Executive Branch, except that they added a provision stating that, for calculation of Brazilian Controlled Foreign Company (CFC) taxation, Brazilian taxpayers may deduct Top-Up taxes paid by their foreign subsidiaries

Once approval is sanctioned by the President, the law will be final.