Taxation on Financial Transactions: Supreme Court Reinstates Decree that Increases IOF (Tax on Financial Transactions)

On July 16th, Minister Alexandre de Moraes of the Supreme Federal Court (“STF”) issued a monocratic decision on tax matters, with retroactive effects, reinstating Decree No. 12,499/2025, which altered the applicable rates for calculating the Tax on Financial Operations (“IOF”), with immediate application to all taxpayers. A brief history and comments on the current situation of this tax follow below.

Brief Legislative History

The IOF is a tax with an extra-fiscal bias – that is, it is a levy that, in addition to having a revenue-raising purpose, also indirectly aims to govern the behavior of taxpayers – which is why it is not subject to any type of prior notice, with its changes producing immediate effects.

Additionally, the legislative framework regarding this tax, approved by the National Congress and published over the years, establishes maximum levels for the application of this tax on different types of transactions carried out by taxpayers, delegating, at least in principle, to the Executive Branch the responsibility for setting the effective rates for calculating and collecting the amounts due.

Currently, the IOF (Tax on Financial Transactions) is governed by Decree No. 6,306/2007, informally known as the “IOF Regulation” or “ROF,” which lists the transactions subject to this tax, as well as the applicable rates.

In this regard, the Executive Branch, aiming to increase its revenue and address potential exchange rate implications, published Decrees No. 12,466/2025 and 12,467/2025 on May 22nd and 23rd, altering the applicable IOF (Tax on Financial Operations) rates for different transactions, leading to extensive social and political discussions on the subject.

In light of these discussions, a new regulation, Decree No. 12,499/2025, was published on June 11th, revoking the previous decrees and introducing changes to the ROF (Regulations for Financial Operations), which, broadly speaking, can be summarized as an increase in taxation on different types of transactions.

Once this latter Decree was published, the political discussions intensified, with members of the National Congress openly opposing the tax increase and requesting that the Executive Branch reduce its spending. Additionally, the National Congress approved Legislative Decree No. 176/2025, which suspended the effects of the three Decrees published by the Executive Branch, returning the ROF (Regulatory Framework for Federal Budgets) to its previous version.

Considering the National Congress’s position as unconstitutional, the Attorney General’s Office (“AGU”) – as well as other political agents – filed a lawsuit before the Supreme Federal Court (STF) to validate the Decrees published by the Executive Branch.

Judicial Proceedings

Once the judicial discussion began, Minister Alexandre de Moraes was assigned as the rapporteur for the action proposed by the AGU. On July 5th, the Minister ordered the temporary suspension of the effects of both the Decrees issued by the Executive Branch and the Legislative Decree of the National Congress, ordering a mediation hearing between the representatives of these branches of government.

Despite holding such a hearing, no consensus was reached between the parties, leaving the Minister with the prerogative to assess the matter, with the possibility of issuing a monocratic decision on the subject, which was done on July 16th.

Current situation of IOF (Tax on Financial Transactions)

In summary, Minister Alexandre de Moraes’ decision not only overturned Legislative Decree No. 176/2025, reinstating the terms of Decree No. 12,499/2025, but also specifically amended the latter to remove the imposition of IOF on “draft risk” transactions, a point that had been questioned by taxpayers since the publication of the Executive Branch Decrees.

Thus, following Minister Alexandre de Moraes’ decision, the main changes regarding the application of IOF (Tax on Financial Operations) are as follows:

It should be noted that the decision is a single-judge ruling and must still be reviewed by the full Supreme Court, where the matter may be considered by the other Justices, who may uphold – or overturn – Minister Alexandre de Moraes’ single-judge decision.

Considering all the points raised, we are available for further comments and analysis to clarify any questions.