The recent COSIT Answer to Advance Tax Ruling Request No. 75, published on April 30, 2025, marks the first official statement by the Brazilian Federal Revenue Service on the application of Law No. 14,754/2023 to irrevocable foreign trusts that have beneficiaries residing in Brazil. This response raises important questions about the tax implications for international succession structures involving Brazilian residents.
What are trusts?
Trusts are legal instruments typical of countries that adopt the common law legal system, such as the United States. These instruments are widely used in international estate and succession planning, as well as for asset protection.
Although there is no equivalent instrument in Brazilian law, Brazilian doctrine and case law have recognized the validity of trusts created abroad.
Irrevocable and discretionary trust:
⁃“Irrevocable” means that the settlor (the person who created the trust) cannot alter, revoke or take back the assets transferred. “Discretionary” means that the trustee has the autonomy to decide whether, when and how much to distribute income and/or capital to the beneficiaries, in accordance with the rules set out in the document that created the trust (trust deed).
Law No. 14.754/2023 and the Tax Treatment of Foreign Trusts in Brazil:
⁃Law No. 14,754/2023 instituted, for the first time, regulatory provisions on the tax treatment of foreign trusts in Brazil, filling the regulatory gap that had existed until then. Among the relevant provisions, articles 10 to 12 stand out.
⁃ Article 10 of the aforementioned Law, in its items I and II, states that trusts are transparent for tax purposes in Brazil, i.e. the assets transferred to them remain under the ownership of the settlor (grantor/settlor) after their creation, until there is a distribution to the beneficiaries or the death of the settlor, whichever occurs first.
⁃ However, under the terms of paragraph 1 of the same article, if the settlor irrevocably gives up the right to the assets of the trust, the transfer to the beneficiaries may be considered to be in advance of the moment provided for in the previous paragraphs (distribution or death of the settlor). Paragraph 2 makes it clear that this change of ownership will be treated as a gratuitous transfer – a gift, if it occurs during life, or a causa mortis transfer, if it results from the settlor’s death.
⁃Thus, residents in Brazil who are designated as beneficiaries of irrevocable trusts are now considered, for tax purposes, to be the owners of the assets and rights that are the object of the trust, which obliges them to report the assets in their declarations of assets and rights (DAA) in accordance with Article 11, in addition to calculating and taxing the corresponding income and capital gains, under the terms of paragraph 3 of Article 10.
There are also requirements introduced by paragraphs 6 to 8, which extend the obligations of residents in Brazil. Paragraph 6 imposes on the settlor – if still alive – or the beneficiaries who are aware of the existence of the trust, the obligation to arrange for the trust deed or letter of wishes to be amended to include a clause that irrevocably and irreversibly obliges the trustee to comply with the provisions of Brazilian law.
⁃ In cases where neither the settlor nor the beneficiaries have the power to make such a change (as in irrevocable trusts), paragraph 7 states that the beneficiaries must send the trustee a formal communication regarding the obligation to comply with Brazilian law, as well as requesting access to the information and financial resources necessary to fulfill the respective tax obligations.
COSIT Case No. 75/2025:
⁃Recently, a case involving an irrevocable and discretionary trust established in the United States in 2008 was submitted to the Brazilian Internal Revenue Service for analysis. The scenario was presented by a father, representing his underage son, who sought clarification on the application of the provisions of Law No. 14,754/2023.
⁃ In the specific case, the trust had been set up by a foreign trustee, with capitalization coming from a foreign legal entity. The purpose of the trust was to protect the assets for the descendants of a Brazilian shareholder, but this shareholder was not a beneficiary, direct settlor or controller of the assets.
⁃It is worth mentioning here that the Federal Revenue Service has concluded that the fact that the assets were initially contributed by a foreign legal entity is irrelevant, determining that the chain of assets should be investigated up to the identification of the individual who ultimately held the assets, so that they can be considered the settlor of the trust for the purposes of the new law.
⁃ In the consultation, the taxpayer, based on article 12, item IV, of Law No. 14,754/2023, claimed that the absolute discretion of the trustee, coupled with the absence of any actual distribution since the establishment of the trust, would prevent the application of tax obligations under that law. According to his interpretation, as long as the trustee did not decide to make a distribution to the beneficiary, the beneficiary could not be considered the owner of the assets or income linked to the trust.
⁃ The IRS rejected the argument, adopting the position that the tax treatment of trusts is not conditional on the discretionary nature of the administration or the occurrence of actual distributions. According to the tax authorities, under the terms of article 12, item IV, the nominal indication of the beneficiary in the trust is sufficient to attract the corresponding tax obligations, and the acquisition of the right to the assets is not necessary.
⁃ In other words, based on paragraphs 1 and 2 of article 10 of Law 14.754/2023, the Federal Revenue Service understands that, in the case of an irrevocable trust, the transfer of ownership of the assets by the settlor constitutes a gift (if it occurs in life) to the beneficiaries indicated, which authorizes, under the new law, the attribution of tax ownership of the assets and income produced, directly to them, even if, under the rules of the trust, they are not the real owners.
⁃ This position, by presuming the occurrence of a taxable event for a transfer by donation before the beneficiaries actually have the economic or legal availability of the income, ends up disregarding fundamental principles of tax law such as the ability to pay and the effective economic or legal availability of income or assets (articles 145 of the Federal Constitution and 43 of the National Tax Code), creating an environment of legal uncertainty for Brazilian residents who integrate foreign trusts into their planning, potentially burdening people who may never enjoy the assets.
Parallel with the Intentionally Defective Grantor Trust (IDGT):
⁃The IRS analysis becomes even more controversial when compared to the way the US tax system treats sophisticated “defective” irrevocable trust structures such as the so-called Intentionally Defective Grantor Trust (IDGT).
⁃ This is a specific type of trust widely used in the United States for estate planning purposes. In the IDGT, the trust is considered revocable for income tax purposes, which implies that the income continues to be taxed in the person of the settlor.
⁃ However, the trust is irrevocable for gift and inheritance tax purposes, which allows the assets to be excluded from the settlor’s taxable estate on succession, provided it is structured correctly.
⁃This configuration – revocable for one purpose and irrevocable for another – shows how the American tax system is balanced between tax ownership and legal property.
⁃Although in the United States, the establishment of an IDGT can also constitute a donation, this donation is made to the irrevocable trust itself, which has a separate legal personality from the settlor.
In this arrangement, legal title to the assets is transferred to the trust, while tax liability remains with the settlor. In contrast, the Brazilian Internal Revenue Service adopts a unilateral approach, providing for a donation to be made to the beneficiary indicated in the trust, even if the trust operates under a different logic and the beneficiary does not have possession, control or a concrete expectation of economic availability over the assets.
Final considerations:
⁃The regulation brought in by Law No. 14,754/2023, reinforced by SC COSIT No. 75/2025, contrasts with sophisticated trust structures such as the Intentionally Defective Grantor Trust (IDGT) in the United States, which allows for a balance between succession and tax planning, recognizing the complexity and asset function of the trust.
⁃ In the Brazilian context, the rigidity of the rule and its practical interpretation require extra caution. Given the diversity of trust models and the different levels of access and interference of the settlors/beneficiaries, a careful analysis on a case-by-case basis is essential.
Written by Thailane Izabel