Executive summary

On 17 July 2025, the Brazilian Supreme Federal Court (STF) (Brazil's highest court) granted an injunction partially reestablishing presidential Decree No. 12,499/2025, which introduced changes to the rates on several types of credit and foreign-exchange operations.

The STF rendered the decision amid ongoing debate between the Brazilian Government and Congress concerning the Tax of Financial Operations (IOF) regulations. Three Decrees have been issued since 22 May 2025, the last of which had been suspended by a Legislative Decree from Congress.

Background

On 22 May 2025, the Federal Government published Decree No. 12,466/2025, introducing changes that significantly increased tax rates applicable to credit transactions (IOF-credit) as well as many foreign-exchange transactions (IOF-FX). These changes also rolled back previous attempts to effectively eliminate IOF-FX by 2 January 2029. Most of the changes took effect immediately on 23 May 2025.

In response to a negative market reaction, the Government issued Decree No. 12,467/2025 on 23 May 2025, revoking one of the changes outlined in Decree No. 12,466/2025 that affected investments in investment funds abroad and reversing the effects of changes for companies making funds available abroad for investment purposes. (For background, see EY Global Tax Alert, Brazilian Government introduces changes to regulations dealing with taxation of financial operations, dated 27 May 2025.)

The negative reaction from both the market and Congress persisted, leading the Brazilian Government to issue Decree No. 12,499/2025 on 11 June 2025, which made additional amendments and reverted other IOF increases. (For background, see EY Global Tax Alert, Brazilian Government announces substantial tax changes affecting Interest on Net Equity, financial investments, betting operations and IOF regulations, dated 12 June 2025.)

However, the Congress still disagreed with the IOF changes, and on 25 June 2025 took the rare action of suspending the three earlier decrees by publishing Legislative Decree No. 176/2025 and asserting that IOF should not be aimed at increasing tax collection. (For background, see EY Global Tax Alert, Brazilian Congress suspends Government Decrees related to changes in IOF, reestablishing rates set prior to 22 May 2025, dated 26 June 2025.)

In response to the 25 June Legislative Decree, the Brazilian Government filed Declaratory Action of Constitutionality (ADC) No. 96 with the STF. An ADC is a legal action in Brazil aimed at declaring a law or act constitutional. In this case, the ADC contained a request for injunction due to the alleged urgency of the matter.

Current situation

Before analyzing the case, Reporting Justice Alexandre de Moraes proposed a conciliation hearing between the Brazilian Government and Congress, which took place on 15 July 2025. However, as no conciliation was reached, Justice Moraes followed through with the analysis of the injunction request.

On 17 July 2025, the STF published Justice Moraes's monocratic decision dated 16 July 2025 partly granting the injunction requested by the Brazilian Government to reinstate the provisions introduced by Decree No. 12,499/2025. In his reasoning, Justice Moraes asserted that the Brazilian Government did not exceed its powers by increasing IOF rates via Decree, a practice that has been implemented and even validated by the STF in other precedents. The only exception was in relation to the provisions that created a new triggering event for IOF-credit for anticipation of receivable operations (also known as "risco sacado" or "forfait," in Portuguese). In this case, Justice Moraes confirmed that a Decree could not be used to broaden the IOF scope, which could only be done by Law.

Summary of the changes to the IOF legislation

The table below summarizes the key changes to the IOF legislation by each act:

Implications

The STF decision should bring the IOF legislation back to the changes introduced by Decree No. 12,499/2025, except for "risco sacado/forfait" operations, which should remain not subject to IOF-credit.

Moreover, the STF decision determined that Decree No. 12,499/2025 should be effective since its publication ("ex tunc" effects). This has initially raised concerns regarding the retroactive effects of the decision (from both a practical and technical perspective), potentially applying to transactions that occurred since the publication of Legislative Decree No. 176/2025, which had suspended Decree No. 12,499/2025. In response, the Brazilian tax authorities (RFB) have issued an official note stating that financial institutions and other responsible parties that have not charged and collected the IOF in accordance with Decree No. 12,499/2025, due to the suspension of its effects by Legislative Decree No. 176/2025, should not be required to do so retroactively. Subsequently, the STF issued an additional decision clarifying that its decision on the injunction should not have retroactive effect. However, this may also spur discussions as to whether taxpayers who collected IOF on "risco sacado/forfait" operations are entitled to claim for a refund.

Additionally, it is important to note that before a final decision is reached, the full court comprised of the other STF justices will analyze the case. Therefore, it will be important to continue to monitor the developments as well as map future transactions as further changes in the IOF legislation could occur with immediate effect. Taxpayers should also continue to revisit the legislation in force at the time relevant transactions are implemented to confirm that the correct rates are being applied.