In a Brazilian cost-sharing agreement, one company centralizes common support activities for other companies, regardless of whether they belong to the same economic group.
As a result, these companies share the costs associated with these activities.
The Brazilian Federal Revenue Service (RFB), in its statements, recognizes the validity of such agreements, provided that certain tax requirements are met. The agency allows the centralization of costs in a single company, which then allocates the common administrative expenses among the other companies.
This allocation should not result in any profit or gain for the centralizing company, being characterized only as a reimbursement of the expenses actually incurred.
For the amounts paid under a cost-sharing agreement to be deductible from Corporate Income Tax (IRPJ) and not taxed for PIS and Cofins, the RFB requires that:
1. The expenses must be necessary, normal, customary, duly substantiated, and paid;
2. The allocation must be based on reasonable, objective criteria, previously agreed upon and formalized in a contract;
3. Each company must pay an amount proportional to the benefit it received;
4. The centralizing company must not make a profit from the process, appropriating only the amount it is due;
5. All actions related to the allocation of expenses must be properly recorded.
The RFB’s position is that as long as these conditions are met, there is no additional tax on the shared amounts. Therefore, cost-sharing can be an efficient practice for companies looking to optimize resources, provided that the agreement is structured and operated in accordance with established tax guidelines.
