Brazil’s Supreme Court has formed a majority to allow the foreign profits tax on earnings of overseas subsidiaries in Recurso Extraordinário 870.214, an extraordinary appeal brought by the federal government against the miner Vale. The vote came in a virtual session that opened on Aug. 21, 2026, and closes on Aug. 28. The machinery of the state is deciding who gets to keep the money, and Vale is the one under the blade.
Who Pays, Who Decides
On Aug. 27, 2026, the score stood at six votes to four for the foreign profits tax. Gilmar Mendes opened the winning line and wrote: “quem está sendo tributado é a empresa investidora brasileira.” In English, the one being taxed is the Brazilian investing company. Kássio Nunes Marques, Alexandre de Moraes, Cristiano Zanin, Flávio Dino and Cármen Lúcia followed him. The relator, André Mendonça, voted the other way, and Luiz Fux joined him. Mendonça held that the dispute turns on ordinary law rather than the Constitution. Dias Toffoli opened a third line, allowing tax only on the Bermuda unit.
That’s the hierarchy in plain sight. A court packed with state authority decides how a miner’s overseas earnings get treated, while the company and its subsidiaries sit on the receiving end of a ruling that can move billions. The appeal carries no repercussão geral, so its outcome will guide but not automatically govern other foreign profits tax disputes. Even here, the legal system keeps its own limits and exceptions, a controlled channel for conflict rather than any real escape from it.
What the Tax Reaches
The disputed rule is Article 74 of Medida Provisória 2.158-35 of 2001, which reached corporate income tax, or IRPJ, and the social contribution on net profit, known as CSLL. Article 74 treated the profits of a foreign subsidiary as available to its Brazilian parent at once, fixing availability on the balance sheet date so Brazil taxed the parent before any dividend crossed the border. Companies called that a levy on income belonging to a separate legal person abroad, while the government called it a measure of the Brazilian parent’s own growing wealth. Congress later changed course, and Law 12.973 of 2014 revoked Article 74 and built a new regime for years from 2015.
Brazil has double taxation agreements with dozens of countries. Article 7 of those treaties says business profits are taxed where the company operates, except for a permanent establishment in the other country. Vale controls Rio Doce Internacional in Belgium and Rio Doce Comércio Internacional in Denmark. Brasilux and Rio Doce Europa sit in Luxembourg, and all three states hold treaties. A fifth unit, Brasamerican Limited, is registered in Bermuda, which has no such treaty, and tax on that one was already cleared by the lower courts. Article 98 of the Código Tributário Nacional gives treaties priority over ordinary tax law.
The state’s own rules keep colliding with the state’s own treaties. That’s not a bug; it’s the apparatus doing what it does best, sorting profits upward and arguments downward.
What the Court Has Already Done
In April 2013 the STF proclaimed its result in Ação Direta de Inconstitucionalidade 2.588, filed by the Confederação Nacional da Indústria. Six justices produced a binding but partial answer. They upheld Article 74 for controlled units in tax havens, struck it down for affiliates in countries with normal taxation, and voided the clause that reached back to profits earned up to 2001. The same session settled two appeals, RE 611.586 and RE 541.090. In the second, involving Embraco, the treaty question went back to the lower court.
A majority formed inside a virtual session is provisional, and any justice may call a destaque, which would pull the case into the in-person plenary and restart the judgment from zero. A pedido de vista, a request for more time to study the file, can also suspend the case. It has already been halted five times that way, by Gilmar Mendes, Alexandre de Moraes, Kássio Nunes Marques, Luiz Fux and Dias Toffoli. The judgment began in 2024 and is now in its third year. Even the court’s own process drags on, a slow grind where delay itself becomes part of the power.
The Bill at the Bottom
The Receita Federal values this case at R$22 billion, or US$4.26 billion, covering one year of unpaid tax plus refunds for five earlier years. A Receita note from February 2023 put the wider exposure at R$142.5 billion, or US$27.6 billion, for 2017 to 2021, with R$28.5 billion a year thereafter. Those conversions use the Banco Central do Brasil PTAX venda rate, which stood at R$5.1642 per US dollar on Aug. 27, 2026. Vale declined to comment on Aug. 27, and the Advocacia-Geral da União did not reply at once. The Procuradoria-Geral da Fazenda Nacional says the profit belongs to the Brazilian parent and that the treaty rule does not apply.
Fábio Lunardini of Peixoto & Cury Advogados said in March 2025 that treaty profits are taxable only in the state where the company sits. Thulio Alves of Loeser e Hadad Advogados warned in the same month that a win for the treasury could hurt the global competitiveness of Brazilian firms. In the Conselho Administrativo de Recursos Fiscais, the government usually wins, and a Supreme Court nod would harden that record and reshape foreign profits tax planning. The people at the bottom don’t get to vote on any of this. They just live with the bill.