The limit of 30% for the use of losses for tax relief with its reduction in the calculation of Corporate Income Tax and CSLL (Social Contribution over Net Profit) is constitutional. By a majority vote, that was the understanding of the Federal Supreme Court (STF), in dismissing an extraordinary appeal that questioned the application of the so-called 30% limit for deduction of losses from the tax base.

Thus, the rapporteur, Minister Marco Aurelio, was defeated. For him, the 30% limit is unconstitutional and would suggest “confiscation”. “Where there is no income, the application of income tax is inconceivable. And it is by taxing as income the amounts that do not exist, that the limitation implies a violation of the principle of ability to pay, “said the Minister. 

According to attorney Bruno Zaroni, founding partner of Zaroni Advogados, the limitation imposed by the Supreme Court violates the principles of ability to pay and of anteriority, considering that the taxpayer’s profit does not increase his equity, but restores a loss identified in previous periods. “In our view, for the correct assessment of the income for the year, for the purpose of taxing the effective income earned by the taxpayer, the compensation of the full negative results of previous years should be a measurement for taxation purposes,” says the lawyer. 

The 30% limit is the annual limit for taking advantage of the loss for tax relief. According to the law, companies with losses may use them as a deduction from the Income Tax and Social Contribution on Net Profit (CSLL), which apply to corporate profits. But the law limits this use to 30% per year. Prior to this, companies could deduct any loss for the year from the following year’s tax return.