On October 17, the Federal Supreme Court (“STF“) deemed constitutional the tax on financial transactions (“IOF“) imposed on loans of financial resources made between legal entities and legal entities and individuals.

The IOF is a federal tax levied on credit, foreign exchange, insurance, and securities transactions. For the judge reporting the case, the lending of financial resources carried out between individuals who are not financial institutions are credit operations due to their purpose of obtaining funds from a third party with the obligation to repay the amount within a certain period. For this reason, IOF taxation is permitted on such transactions.

According to the decision, there is no law restricting the IOF only to credit operations carried out by financial institutions. Thus, the provision contained in article 13 of Law No. 9,779/98, which bases the collection of IOF on loan operations between individuals who are not financial institutions, was considered constitutional.

In the judgment of Theme 104 of the Supreme Court’s General Repercussion, the following thesis was established: “It is constitutional to levy the IOF on credit operations corresponding to the mutual exchange of financial resources between legal entities or between legal entities and individuals, and this is not restricted to operations carried out by financial institutions”.

Due to the General Repercussion system of the judgment, the thesis established by the STF will be applied by the Judiciary, by the Administrative Council of Tax Appeals (“CARF“) and by the Federal Revenue of Brazil (“RFB“).

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