By Marcelo Blecher

In a judgment held at the beginning of the month, the 1st Ordinary Panel of the 4th Chamber of the 2nd Section of CARF, adopted the understanding that share incorporation operations are equivalent to alienation, for tax purposes, thus giving rise to taxation on the capital gain obtained in the incorporation operation.

In the case at hand, the taxpayer, an individual, founder and chief executive of the Big Ben pharmacy chain, sold to the BR Pharma group in 2011, was fined for not having offered the capital gain obtained in a corporate restructuring operation through the incorporation of shares for Income Tax taxation.

In his appeal, the taxpayer argued that (i) incorporation of shares would not be equivalent to the sale of assets; (ii) there would be a lock-up clause in the incorporation contract; and (iii) the shares would be encumbered with a pledge, which is why the capital gain could only be determined at the end of the guarantee.

Alternatively, the taxpayer claimed (i) his right to deduct from the IR calculation basis the brokerage expenses paid to Credit Suisse and AGL, a company owned by the taxpayer's family, which jointly organized the process of selling Big Ben shares to BR Pharma; (ii) the removal of his wife's name from the passive side of the charge; and (iii) non-taxation for the increase in capital that occurred when the shares were adjusted by the IGP-M index.

By majority vote, the Board Members adopted the understanding that the share incorporation transaction, according to CARF precedents, would constitute a sale, which is why IR should be levied on the capital gains obtained in the transaction. Additionally, the Board Members maintained the joint liability attributed to the taxpayer's wife, as well as the collection of IR on payments made to Credit Suisse as brokerage fees.
On the other hand, the assessment relating to the collection of IR on the amounts paid to AGL and the alleged increase in equity resulting from the correction of shares by the IGP-M index was dismissed.

The Mazzucco & Mello Advogados tax team is available to provide any clarification on this topic.