Tax Planning in Brazil: When Is It Lawful?

By Glênio S Guedes

1. Introduction – Tax Planning under Permanent Suspicion

Tax planning in Brazil exists within a structural paradox. On the one hand, it is traditionally recognized—both by classical legal scholarship and by the Constitution itself—as a legitimate exercise of private autonomy and economic freedom. On the other, it is frequently portrayed in administrative practice and judicial rhetoric as an inherently suspect activity, often treated as a disguised form of fraud. This tension is not accidental. It reflects a persistent difficulty of the Brazilian State in accepting the legal limits of its taxing power.

In recent decades, a diffuse anti-avoidance discourse has intensified, marked by open-ended and moralizing categories, often imported uncritically from foreign legal systems—such as “abuse of rights,” “substance over form,” or “economic purpose.” When transposed without careful doctrinal mediation, these notions erode strict legality and undermine legal certainty. The consequence is a normative environment in which taxpayers are no longer assessed according to what the law permits, but according to what tax authorities retrospectively believe should have been done.

This article seeks to reconstruct, in light of the Brazilian Constitution and the internal coherence of the tax system, the objective legal criteria that distinguish lawful tax planning from unlawful tax evasion, reaffirming legality, typicity, and private autonomy as foundational principles of tax law.

2. Tax Planning and Private Autonomy in a Constitutional State

The 1988 Constitution established a State empowered to tax, but only within defined legal boundaries. The principle of tax legality, economic freedom, and the architecture of the national tax system are not designed to maximize revenue at all costs, but to ensure the juridical legitimacy of taxation. Taxation is not an act of unconstrained political will; it is an exercise of power conditioned by law.

Within this framework, tax planning emerges as a legitimate expression of private autonomy, allowing individuals and businesses to organize their affairs, assets, and economic activities in the least burdensome manner permitted by law. Brazilian law imposes no obligation to pay the highest possible tax, just as it recognizes no principle of “fiscal solidarity” that would authorize the State to demand sacrifices beyond statutory limits.

The principle of ability to pay, frequently invoked to restrict tax planning, functions not as a limitation on the taxpayer’s freedom, but as a constraint on the State’s taxing power. It is a shield for the taxpayer, not a sword for the tax authority. To reverse this logic is to invert constitutional design and transform taxpayers into permanent moral debtors of the State.

3. Tax Avoidance, Tax Evasion, and Simulation: Necessary Distinctions

Conceptual confusion between lawful tax avoidance and unlawful tax evasion remains one of the principal sources of legal uncertainty in Brazilian tax law. A principled reconstruction of these categories is therefore indispensable.

3.1 Lawful Tax Avoidance

Lawful tax avoidance consists in the legitimate reduction of tax burdens through acts performed prior to the occurrence of the taxable event, by choosing among legally available alternatives. It reflects the taxpayer’s right to select the less onerous path among equally lawful options.

Avoidance does not negate a tax obligation; it prevents the taxable event from occurring. Where the legal conditions for tax incidence are not met, no obligation arises. This elementary principle of tax incidence is often disregarded by fiscal narratives that conflate expected revenue with legal duty.

3.2 Tax Evasion

Tax evasion, by contrast, presupposes the occurrence of the taxable event and the subsequent illicit suppression of the tax due. It manifests through fraud, omission, falsification, or concealment, and constitutes a direct violation of tax law.

Where avoidance operates before tax incidence, evasion operates against an already perfected obligation. To blur this distinction is to dissolve the very concept of tax liability.

3.3 Simulation as the True Criterion of Illegality

In Brazilian law, the only doctrinally coherent basis for disregarding formally lawful acts in tax planning is simulation, as defined by Article 167 of the Civil Code. Simulation—whether absolute or relative—occurs when there is a divergence between the legal form adopted and the reality actually intended or practiced.

Only in such cases may the tax authority disregard the apparent transaction and impose tax consequences consistent with the dissimulated reality. Outside simulation, there is no illegality, even where tax savings constitute the decisive motive.

Article 116, sole paragraph, of the National Tax Code does not establish a general anti-avoidance rule. It merely authorizes the disregard of acts designed to conceal taxable events. It does not license broad economic interpretations or subjective inquiries into taxpayers’ intentions.

4. The Misplaced Notion of “Abuse of Rights” in Tax Planning

The attempt to transpose the civil law doctrine of abuse of rights into tax law reflects a serious methodological error. Abuse of rights is a category developed within private law, where general clauses and flexible standards prevail.

Tax law, however, is governed by strict legality, closed typicity, and absolute statutory reservation. There is no room for invalidating lawful conduct based on moral judgments, fiscal expectations, or revenue-oriented convenience.

To claim that tax planning becomes unlawful merely because it is exclusively tax-driven is to suggest that the exercise of a legal right is illicit due to its purpose. Such reasoning undermines the very notion of rights and subjects private autonomy to administrative discretion.

5. Indirect Legal Transactions and Tax Planning

Tax planning frequently employs indirect legal transactions, whereby parties consciously choose a legally typical form to achieve effects not traditionally associated with that form. This technique is fully legitimate under private law.

An indirect transaction is not equivalent to simulation. In simulation, the declared legal effects are not intended; in indirect transactions, they are fully assumed and executed. The taxpayer does not deceive the law but operates within its possibilities.

The legitimacy of indirect transactions depends on a single requirement: the effective realization of their legal effects. Where those effects are fictitious, dissimulation arises; where they are real, lawful tax avoidance prevails.

6. Paradigmatic Cases in Brazilian Law

Brazilian legal practice offers illustrative examples. Family holding companies, capital contributions of real estate, corporate reorganizations, and the use of legal entities for income structuring are, in themselves, lawful planning mechanisms.

Their legality does not depend on the tax benefit obtained, but on the economic and legal reality of the transaction. Holdings that engage in real activity are lawful; shell companies are not. Tax immunity on real estate capital contributions is legitimate when genuine economic activity exists; it is absent where the company is fictitious.

The decisive question is always the same: Was the transaction effectively carried out?

7. Objective Criteria for Lawful Tax Planning

Within the Brazilian legal system, tax planning is lawful when:

1. it is undertaken before the taxable event occurs;

2. it employs legal forms expressly recognized by law;

3. it involves no simulation or dissimulation;

4. it is effectively implemented;

5. it produces real and lasting legal effects.

   
   

Outside these parameters, illegality may arise. Within them, no legitimate basis for fiscal censure exists.

8. Conclusion – Planning Taxes Is Not Defrauding the State

Tax planning is not a pathology of the tax system; it is its logical consequence. Where the law imposes a tax, the taxpayer must pay. Where the law does not reach, no obligation exists. To assert otherwise is to replace the rule of law with a regime of permanent suspicion.

The true difficulty of tax planning in Brazil is not legal, but cultural and institutional. As long as increased revenue is treated as an intrinsic constitutional value, legality will remain under strain. Reaffirming the limits of the taxing power is therefore not merely a defense of taxpayers, but an act of fidelity to the Constitution itself.