Caio Malpighi, associate in our Tax practice, examines Brazil’s application to the Side-by-Side Safe Harbor within OECD’s Pillar Two in a Tax Notes International article. If accepted, Brazil would be second after the United States.

Pillar Two sets a 15% jurisdictional minimum for multinational groups with at least €750 million in revenue. A domestic minimum tax gives the local country first claim; parent-country and backstop rules collect residual tax. The safe harbor accommodates national systems achieving GloBE objectives by other means. It turns off residual rules for groups headquartered in recognized jurisdictions, while domestic minimum taxes remain.

Caio examines Brazil’s central argument: its worldwide rules tax active and passive profits of foreign controlled companies, wherever located and regardless of foreign tax burden, generally at 34%, without a participation exemption. The base thus appears at least as broad, and the burden far heavier, than the U.S. regime around which the criteria were drawn.

The piece shows why Brazil’s treaty network complicates that claim. Most Brazilian treaties lack a U.S.-style saving clause. In Vale, the Superior Court of Justice held that Article 7 precluded the former accrual charge. RE 870,214, before the Brazilian Supreme Court, concerns the prior statute, but its reasoning may affect current Article 77. If treaty protection prevails, Brazil’s regime may fail the comprehensiveness requirement.

Caio also frames this as an inter-nation equity issue. E.g, India, and Argentina are treaty partners that have neither the GloBE Rules nor a domestic minimum tax. If their treaties bar Brazil’s tax, profits could escape Brazil and a host-country minimum tax. Granting safe-harbor relief without an equivalent charge could favor Brazilian groups over competitors.

On policy, the article argues that certification may offer Brazilian multinationals little and harm competitiveness. Article 40 of Law No. 15,079/2024, which enacted the domestic minimum tax, directed the Executive to reform these burdensome rules in line with Pillar Two and outbound competitiveness. Certification could entrench what Congress ordered reformed and require fresh OECD review of later changes. Since the 34% charge leaves little residual Pillar Two exposure, the benefit may be marginal.

Caio further identifies a litigation risk: Brazil’s Office of the Attorney General for the National Treasury could invoke certification before the Brazilian Supreme Court to argue against treaty protection. In his view, that would be improper: the package is administrative guidance, not a treaty, and cannot bind the Court or displace Article 7.

Te study concludes that Brazil should reform its foreign-profit rules before seeking certification. Recognition should follow comprehensive, competitive reform, not preserve a regime Brazilian law ordered changed.

Check the full article here.