{"id":8477,"date":"2026-09-24T11:03:51","date_gmt":"2026-09-24T14:03:51","guid":{"rendered":"https:\/\/araujopolicastro.com.br\/taxation-of-dividends-ruling-paves-the-way-for-challenging-the-10-withholding-tax\/"},"modified":"2026-09-24T11:11:50","modified_gmt":"2026-09-24T14:11:50","slug":"taxation-of-dividends-ruling-paves-the-way-for-challenging-the-10-withholding-tax","status":"publish","type":"post","link":"https:\/\/araujopolicastro.com.br\/en\/taxation-of-dividends-ruling-paves-the-way-for-challenging-the-10-withholding-tax\/","title":{"rendered":"Taxation of Dividends | Ruling Paves the Way for Challenging the 10% Withholding Tax"},"content":{"rendered":"\n

The debate over the new taxation of profits and dividends established by Law No. 15,270\/2025 has yielded an important precedent in favor of taxpayers.<\/p>\n\n\n\n

In a ruling handed down in September, the Federal Court of S\u00e3o Paulo ruled that the 10% withholding tax on income tax levied on the total amount of profits and dividends paid by a single legal entity to a single individual residing in Brazil is unconstitutional when the distributed amount exceeds R$ 50,000 per month.<\/p>\n\n\n\n

Although the decision applies only to the company that filed the lawsuit and is still subject to review by higher courts, its reasoning opens up a new avenue for legal debate for other legal entities subject to the withholding obligation.<\/p>\n\n\n\n

How the new withholding works<\/strong><\/h2>\n\n\n\n

Effective January 2026, Article 6-A of Law No. 9,250\/1995, as added by Law No. 15,270\/2025, requires a 10% withholding of IRPF when a single legal entity pays, credits, allocates, or distributes to the same individual resident in Brazil profits and dividends totaling more than R$50,000 in the same month.<\/p>\n\n\n\n

Once this threshold is exceeded\u2014even by a small amount\u2014the withholding tax applies to the total amount of distributed profits and dividends, and not just to the excess portion.<\/p>\n\n\n\n

This system produces what is known as the \u201cstep effect\u201d: anyone who receives R$50,000 in a given month is not subject to withholding, whereas receiving R$50,001.00 subjects the entire amount to the 10% tax rate, resulting in a withholding of R$5,000.10.<\/p>\n\n\n\n

What the Federal Court Ruled<\/strong><\/h2>\n\n\n\n

In ruling on Writ of Mandamus No. 5008153-37.2026.4.03.6100, the 9th Federal Court of S\u00e3o Paulo recognized that the Federal Government may tax profits and dividends, but concluded that the system adopted by Article 6-A of Law No. 9,250\/1995 violates the constitutional principles of ability to pay, equal treatment, and the progressive nature of income tax.<\/p>\n\n\n\n

According to the ruling, the 10% tax rate applied to the full amount of dividends\u2014resulting from exceeding a single, rigid threshold\u2014causes an abrupt and disproportionate increase in the tax burden.<\/p>\n\n\n\n

The decision also noted that the legal criterion considers only payments made from a specific source in a given month, without necessarily reflecting the beneficiary\u2019s overall income and actual economic capacity.<\/p>\n\n\n\n

Thus, two individuals with the same annual income may be subject to significantly different tax treatments based solely on the number of paying sources or the way dividends were distributed throughout the year.<\/p>\n\n\n\n

Based on these grounds, the judgment relieved the plaintiff company of its obligation to withhold tax and ordered the Federal Revenue Service to refrain from imposing assessments, fines, or other measures based solely on the failure to withhold the tax in question.<\/p>\n\n\n\n

Can the paying company file the lawsuit?<\/strong><\/h2>\n\n\n\n

A key aspect of the ruling concerns the company\u2019s standing to challenge the withholding in court.<\/p>\n\n\n\n

The Union argued that only the partners receiving dividends could challenge the assessment, since they are the ones liable for personal income tax. That argument was rejected. <\/p>\n\n\n\n

According to the decision, although the economic burden of the tax falls on the individual recipient, the law directly assigns the duty to withhold and remit the tax to the corporate payer. If it fails to do so, it is the corporation that is subject to audit, assessment, the imposition of fines, and other consequences resulting from noncompliance with this obligation. <\/p>\n\n\n\n

For this reason, the court recognized that the paying company has its own right to be protected and may file a lawsuit in its own name, even if the partners are not named as plaintiffs in the action.<\/p>\n\n\n\n

To demonstrate the existence of a concrete threat\u2014rather than a mere abstract challenge to the law\u2014the legal entity must prove that it makes or intends to make distributions subject to withholding tax\u2014that is, payments exceeding R$ 50,000 in the same month to the same individual residing in Brazil.<\/p>\n\n\n\n

The composition of the active group and the required documentation must, however, be evaluated based on the circumstances of each company, especially in cases involving more than one paying source, different tax regimes, or claims specific to the recipients of the dividends.<\/p>\n\n\n\n

The decision is still subject to review<\/strong><\/h2>\n\n\n\n

The ruling has no general effect and benefits only the company that filed the writ of mandamus. Therefore, other legal entities that fail to withhold taxes without obtaining their own court order remain subject to assessments and fines as paying sources. <\/p>\n\n\n\n

The Union had filed an interlocutory appeal against the preliminary injunction, which was granted suspensive effect. With the issuance of the judgment on the merits, the appeal is likely to become moot, since the provisional decision has been superseded by the final judgment in the lower court. <\/p>\n\n\n\n

The ruling, however, is still subject to mandatory review and may be challenged by the Federal Government before the Federal Regional Court of the 3rd Region. It is, therefore, a significant and favorable precedent, but not yet final. <\/p>\n\n\n\n

What Companies Can Do<\/strong><\/h2>\n\n\n\n

Companies that make or intend to make monthly payments of profits and dividends in excess of R$50,000 to the same individual must assess:<\/p>\n\n\n\n