• Stock-for-stock merger taxation in Brazil

    By Gabriel Quintanilha


    When there is a merger or acquisition, there are different possible ways that the acquiring company can pay for the acquired company.

    In some cases, the merger is stock-for-stock, and in this cases, the shareholders of the company that have the merged shares transfer all their shares to the merged company, at market value and, as a counterpart, do not receive payment in cash, but shares of the acquiring company.

    For the first time in Brazil, this operation was analyzed by the Upper Chamber of the Administrative Council of Tax Appeals – CSRF and it considered that there was a Capital gain on a merger of shares carried out in the merger operation between two Brazilian companies.

    For the board members, with the incorporation of shares, occurs a replacement of the equity of the partner, by the same amount - shares of the company incorporated by the incorporating company. Thus, it would be up to the partners to only change this information in their annual adjustment statements.

    This interpretation is really dangerous because the IRS can charge taxes on the capital gain at two different times: when the shares are sold and when the merger or acquisition happens.

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Gabriel Quintanilha

Gabriel Quintanilha is based in Rio de Janeiro. Gabriel has been an attorney at law since 2006. He is also Professor of Tax Law at Fundação Getulio Vargas – FGV and IBMEC. Author of books and articles published in Brazil.

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