In 2008 the Brazilian accounting rules were aligned with IFRS (New BRGAAP). The so called Transitory Tax Regime (“RTT”) was introduced in 2009 (Law 11,941/2009) establishing that, solely for tax purposes, companies would have to follow the accounting rules in force prior to the aforesaid conversion (Tax BRGAAP). Such RTT would be in force until a new set of tax rules, fully aligned and adapted to the new accounting environment, were developed and introduced in the tax system.
In this context, the Executive Branch published yesterday (Nov 12th, 2013) the Provisional Measure (MP) 627, which extinguishes the RTT and finally introduces the above set of rules aiming at aligning and adapting the tax rules to the current IFRS based accounting environment.
Taxes impacted by MP 627 are Corporate Income Tax (“IRPJ”), Social Contribution Tax on Net Profits (“CSLL”) and Gross Revenue Taxes (“PIS/COFINS”).
The main significant changes refer to:
- Dividend payments;
- Interest on Net Equity;
- Goodwill tax amortization;
- Step up of assets (Tangibles and Intangibles);
- Corporate Restructuring (i.e. mergers, spin-offs, etc.);
- Controlled Foreign Corporation Rules (“CFC Rules”);
- Tax basis of PIS/COFINS (concept of gross revenue);
- Leasing (Depreciation and payment of the leasing fees);
- Subsidy for Investment and Capex;
- Premium and gain in the issuance of bonds;
- Impairment tests;
- Fair value of assets and liabilities;
- Tax compliance obligations.
Some of the changes are applicable as of 2014. Most of the changes though will be applicable as from January/2014 or as from January/2015 depending on specific tax election to be made by each taxpayer.
The length and depth of MP 627 do not allow us to detail the changes in this very short Tax News. Nevertheless, we encourage companies and investors to start immediately assessing the potential impacts such new rules may cause to their existing and future businesses, transactions and deals, as well as to budgets, financial models and forecasts.
KPMG Tax team is well positioned and has the expertise and knowledge to provide you with the necessary assistance in the development of such proactive assessment of the tax impacts derived from MP 627 as well as of the appropriate tax compliance processes and strategy.
Note: The Provisional Measure is effective as Law as from the date of its publication for 60 days and may be extended for an additional 60-day period. The Congress must approve the Provisional Measure within such period (i.e. 120 days after its publication). If Congress does not approve MP 627 within the 120-day period – which does not commonly happen – MP 627 will no longer be effective, but Congress must address the effects of the Provisional Measure during the period of its effectiveness. It is also possible that some of the topics addressed by MP 627 may change if and when it is converted into law, on approval by Congress.
For more information, please contact a tax professional with KPMG in Brazil: