From 1996 on, tax laws in Brazil allow firms to distribute cash to its shareholders in two ways: dividend payments and interest on equity. Firms that pay interest on equity can deduct them for tax purposes, but they cannot deduct dividend payments. Investors, in turn, do not pay taxes on the dividends they earn, but they do pay on the amount of interest on equity they receive. All in all, there is a tax advantage in paying interest on equity instead of dividends. And yet, many public firms in Brazil forgo the tax benefits of interest on equity. I argue that an agency problem explains this puzzle. If a firm pays dividends, the tax cost of forgoing the corporate tax deduction of interest on equity is split among all shareholders. In contrast, controlling shareholders bear most of the taxes on interest on equity, if the paying firm has a pyramidal ownership structure. I present evidence that this asymmetry on the tax burden may indeed explain why so many firms in Brazil pay dividends instead of interest on equity.