In 2008 the Brazilian accounting rules were aligned with IFRS (New BRGAAP) according to the provisions of Law 11,638/2007. A so called Transitory Tax Regime (“RTT”) was introduced in 2009 by Law 11,941/2009 to define that, solely for tax purposes, companies would have to book their revenues, costs and expenses in accordance with the existing accounting rules prior to the conversion to IFRS (Old BRGAAP).
In this context, Normative Instruction 1,397, published on September 16, 2013 (“IN 1,397/2013”) implements a new tax filling obligation in connection to the RTT and introduces other significant changes to the tax legislation.
(i) New tax filling obligation - Public Digital System Tax Bookkeeping (“Sped Tax”): A new ancillary tax obligation consisting of a digital version of the accounting books and records prepared in accordance with the Brazilian accounting rules prior to the conversion to IFRS (Old BRGAAP) was introduced and must be prepared as of 2014 fiscal year (to be filed in June 2015);
(ii) Public Digital System Bookkeeping regarding Corporate Income Taxes (“Sped IRPJ/CSLL”): IN 1,397 sets forth the details to be observed on the preparation of the “Sped IRPJ/CSLL” (which was introduced by Normative Instruction 1,353/2013 published on May 2nd, 2013) and defines that it is mandatory as from 2014 (to be filed in June 2015). Such Sped IRPJ/CSLL substitutes the Book containing the records regarding Income Tax and Social Contribution (“Lalur”) and the Income Tax Return (“DIPJ”). In relation to activities carried out during the 2013 fiscal year, tax ancillary obligations such as Lalur, DIPJ and Transitory Tax Account Control (“Fcont”) need to be prepared and filed by taxpayers in the 2014 fiscal year;
(iii) Taxation on dividends distribution: Considering that the basis for the payment of dividends is the accounting net income calculated under the New BRGAAP (IFRS) and that dividend payments are exempted in Brazil (according to Law 9,249/95, art. 10), a formal opinion (“Parecer / PGFN / CAT 202/2013”) was issued by the Office of the Attorney-General of the National Treasury (“PGFN”) clarifying that the tax exemption should apply to dividend distributions based on net income calculated under the Old BRGAAP (please refer to “Tax News” edition from March 27, 2013). IN 1,397/2013 confirmed such understanding and defined the taxation criteria to be applied to the dividends paid in excess of the net income calculated under the Old BRGAAP. Such taxation should vary according to the beneficiary of the dividends, as follows:
a. Brazilian resident individuals – Income Tax (IRPF) should be levied based on progressive rates (7,5%-27,5%);
b. Brazilian resident legal entities – Dividends paid in excess should be considered as ordinary income and subject to the regular taxation (currently the combined statutory rate is levied at 34% in general and 40% for banks, insurance companies and entities regulated by the Brazilian Central Bank); and
c. Non Brazilian residents – Withholding income tax should be levied at a 15% rate (25% in case of remittances made to tax haven jurisdictions);
(iv) Interest on Net Equity (“INE”): As already indicated by the Brazilian Revenue Service in the recently issued Formal Consultation 103/2013 (please refer to “Tax News” edition from August 28, 2013), IN 1,397/2013 confirmed that INE must be calculated based on the Old BRGAAP for tax purposes (i.e., for tax deductibility purposes).
Additionally, in the context of RTT, IN 1,397/2013 mentioned expressly that premium in the issuance of debentures, investment subsidies and pick up method must be calculated based on Old BRGAAP for tax purposes. In other words, based on RTT the new accounting rules (IFRS) should not have tax impacts in Brazil.
For more information, please contact a tax professional with KPMG in Brazil:
Marienne Coutinho, firstname.lastname@example.org
Ericson Amaral, email@example.com
Murilo Mello, firstname.lastname@example.org
Roberto Haddad, email@example.com
Julio C. de Cepeda, firstname.lastname@example.org
Carlos Eduardo Toro, email@example.com
Valter Shimidu, firstname.lastname@example.org
Cecilio Schiguematu, email@example.com
Marcus Vinícius Gonçalves, firstname.lastname@example.org
Marcus Oliveira, email@example.com
Adriano Ponciano, firstname.lastname@example.org