The Federal Regional Court of the 4th Region limits the 10% withholding tax on profits and dividends and mandates adjustments to the projected annual taxation.

The changes introduced by Law No. 15,270/2025 inaugurated a new system for taxing so-called high incomes, including the provision for monthly withholding of Personal Income Tax on profits and dividends distributed in amounts exceeding R$ 50,000 per month. However, the new rule is already beginning to be subject to judicial review, given the effects produced by the linear application of the 10% tax rate.

In a recent decision rendered in Appeal No. 5026333-41.2026.4.04.0000/RS, the Federal Regional Court of the 4th Region analyzed a request made by a company and its partner to waive the withholding tax provided for in Article 6-A of Law No. 9,250/1995. The taxpayers argued, among other grounds, a violation of the principles of ability to pay, equality, proportionality, and reasonableness, especially due to the application of the fixed rate of 10% on income that could result in a significantly lower annual tax burden.

The controversy stems from the difference between the monthly withholding and the system established for the annual taxation of high incomes. While the legislation provides for a 10% withholding when profits and dividends paid in the month exceed R$ 50,000, the annual taxation establishes a progressively increasing rate between 0% and 10% for annual incomes between R$ 600,000 and R$ 1.2 million.

Upon reviewing the appeal, Federal Judge Leandro Paulsen acknowledged that the advance application of the maximum 10% rate is not reasonable for taxpayers in this intermediate bracket. This is because monthly payments between R$ 50,000 and R$ 100,000, when projected over an annual period, may be subject to an effective rate much lower than 10%. Therefore, full withholding could represent an advance payment of tax in an amount greater than that presumably due at the end of the fiscal year.

According to the ruling, this excessive prepayment compromises the taxpayer's financial availability until the subsequent refund is made in the annual adjustment, contradicting the constitutional principle of ability to pay. The judge also highlighted that the system could, in practice, represent a temporary financing mechanism for the Federal Government through the retention of amounts exceeding the tax actually projected.

In light of this, the TRF4 (Regional Federal Court of the 4th Region) partially granted the appeal, determining that, in monthly payments of profits and dividends, the National Treasury should not require withholding exceeding the percentage corresponding to the projected annual taxation. For these cases, the decision determined the use of a monthly rate presumably equivalent to the annual rate, preserving the subsequent adjustment in the Income Tax return.

The decision is significant because it does not entirely eliminate the new taxation on high incomes, but seeks to reconcile the advance withholding with the tax burden that, in principle, will actually be levied at the end of the year. The TRF4's own institutional communication highlighted that the 10% withholding could result in the prepayment of amounts exceeding the tax due and compromise the taxpayer's financial availability until the annual adjustment.

However, this is a decision rendered in the context of an appeal, meaning that the merits of the interlocutory appeal will still be assessed by the panel of judges of the TRF4 (Regional Federal Court of the 4th Region). Even so, the precedent opens an important discussion about the limits of the advance withholding tax established by Law No. 15.270/2025 and demonstrates that the taxation of high incomes should observe not only the objective criteria provided for by law, but also its compatibility with the ability to pay, reasonableness, and the effective tax burden projected for each taxpayer.

By Valentine Bondan Pierotto