The Brazilian Federal Revenue Service recently issued a Tax Ruling No. 21/2024, taking a position on the incidence of income tax in the case of transfers resulting from inheritance or advance on legitimate assets of shares in closed-end fixed-income investment funds or closed-end equity investment funds.

The article 23 of Law No. 9,532/1997 determines that in cases where assets are transferred by inheritance or advance of legitimate, the taxpayer may choose to receive the asset at historical value or at market value.

In the event of receiving the asset at market value, the difference between the acquisition cost of the asset and the market value at which the asset was received shall be taxed at a 15% income tax rate.

However, in the aforementioned Tax Ruling, the Brazilian Federal Revenue Service understood that when the transmission, even if within the scope of inheritance and/or advance of legitimate, involves shares of closed-end fixed-income investment funds or equity investment funds, article 23 of Law No. 9,532/1997 should not be applied.

In this case, tax authorities understood that the transmission is equated to alienation and, therefore, should follow the general rule of capital gains when the transfer occurs at the market value of the shares, meaning that income tax will be levied at a progressive rate of 15% to 22.5%, depending on the profit earned.

The current position of the Brazilian Federal Revenue Service revised Tax Ruling No. 98/2021 and 383/2014, which provided favorable interpretations for the taxpayer.