Do You Know the SCP? Do You Know How It Can Help You Save on Taxes?

Originating in the period of maritime exploration, the Undisclosed Partnership (SCP) allows commercial transactions to be carried out jointly, within a specific scope, without the need to remunerate one of the parties for the referral—which would generate double taxation of the same revenue—such as cooperation to acquire items of common interest.

1. Understanding the SCP

The SCP is a partnership between two or more parties that decide to enter into an agreement to cooperate for a specific economic purpose, in which one of the parties assumes the role of Ostensible Partner and the other assumes the role of Participating Partner.

To make this clearer, imagine a commercial transaction in which you decide to provide certain services, say, condominium security services. And you have a major business partner who has excellent relationships with condominiums.

Well, at this point, you might think that the best alternative would be to enter into a partnership agreement.

This alternative—entering into a business partnership—will have a significant tax impact, namely: Suppose that Mirada do Sol Condominium generated R$100,000 in revenue. And suppose that your operation will be taxed at 30%, meaning that R$30,000 will be paid in taxes. Now, your partnership agreement is for 30%, meaning that R$30,000 will be the partner’s remuneration. And your partner will also tax the transaction at 30%, meaning that they will pay R$9,000 in taxes. In the end, total taxes amounted to R$39,000

RESULT: R$39,000 in taxes

However, if instead of creating a simple partnership you establish an SCP and assume the position of Ostensible Partner of that partnership—that is, you manage the business and provide the service, overseeing the entire process—and the partner assumes the position of Participating Partner, that is, the one who makes the referral and lets you take care of the rest,

Then, in this case, the partner (Participating Partner) receives their share as dividends. As a result, everything they would pay in taxes on their share will be paid within the SCP through normal taxation. Thus, taxing the SCP at 30%, it will pay R$30,000 in taxes. The Participating Partner will withdraw 30% as dividends, which is your agreement, and therefore will not pay any taxes.

RESULT: R$30,000 in taxes - OPERATIONAL GAIN OF R$6,000

2. How to Establish an SCP

All the rules would not be relevant to an article such as this one, but what the business owner needs to know is:

(i) It is necessary to prepare a sound Undisclosed Partnership agreement;

(ii) It must be registered with the Federal Revenue Service of Brazil;

(iii) Taxation and management are the responsibility of the Ostensible Partner;

(iv) The Partners may not be taxed under Simples Nacional; and

(v) In addition to a sound SCP Agreement, it is important to have partners’ agreements in place as well, ensuring the security of the transaction.

3. What Other Advantages Are There?

In addition to there being no double taxation, the amounts calculated within the SCP should not affect the consideration of revenue for companies under the Presumed Profit regime. Thus, the amounts calculated in the SCP do not increase the revenue of the company under the Presumed Profit regime, forcing it to migrate to the Actual Profit regime.

Therefore, if the Presumed Profit regime is an advantageous option, there is no need to begin being taxed under the Actual Profit regime.

Did you find the SCP-based business model interesting? Then schedule a conversation so we can see how it may benefit your business.