Brazil: Offsetting Tax Credits within the Lei do Bem

In May 2018 the Brazilian RFB has published Law No. 13.670, which brought significant changes in tax legislation to compensate for the loss of collection with the reduction of taxes on diesel oil and its derivatives. These changes eventually provoked great discussion in the tax field because this law changes the form of offsetting tax credits.

 

How will offsetting tax credits change ?

The taxable person who calculates the income tax and the social contribution on net income (CSLL) credits will no longer be able to offset the debts in the monthly payment by estimate. However, in the justifications of the Minister of Finance, it is clarified that the prohibition to offset estimates does not remove the right to credit, which can still be used to offset debts of other taxes.

Among the highlights of the regulation is the unification of the legal systems of tax offsetting (land and social security credits) in relation to legal entities that use the Digital Bookkeeping System of Tax, Social Security and Labor Obligations (e-Social) to determine the contributions they have to make.

Law 11.196 / 05, known as the Lei do Bem (Law on Goods), was created as tool by the Government to encourage companies to secure and expand investment in research and development (R&D) projects and related infrastructures. As a strategic pillar for the development of the country, it is important to interpret the extent to which the new law may affect the application of the incentives brought by the Law on Goods.

 

How can tax incentives be used?

Many companies took advantage of the IR and CSLL incentive brought by the Law on Goods, where it could be applied in two ways:

  • through real-time use
  • through the generation of tax credit

The tax credit was generated when the entity, after paying taxes at the close in January, identified that the amount of income tax and social contribution paid was greater than the actual obligation. Previously, in the months following this identification, the entity could use this credit generated to reduce the monthly payment by IR and CSLL estimate. However, as Law No. 13,670 / 18 changes, companies will have to wait until the close of next year to enjoy such credits ( until next January). The norm brings the so-called “payroll”, excluding the payment of substitutionary taxation of Social Security Contribution on Gross Revenue – CPRB from various sectors of the economy, from October 2018, implying the return of these sectors to the payment of social security contribution under payroll.

 

Which tax credits cannot be used anymore?

In addition, new rules for compensation were introduced and thus some tax credits cannot be used by companies anymore. The following items may not be compensated by delivery of Per / DComp:

  • not approved debt that has already been subject to offset, even if the offsetting is pending final decision
  • the amount of the request for restitution or refund already rejected by the competent authority of the Federal Revenue Secretariat of Brazil, even if the request is pending a final decision
  • the credit subject to the request for refund or refund and the credit informed in a clearing statement whose confirmation of liquidity and certainty is under tax procedure
  • the amounts of family allowance and maternity pay
  • the debts related to the monthly payment by estimate of Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL)

 

Which additional changes have been introduced?

The issuance of an official letter of the differences found will be limited to the imposition of an isolated fine due to non-homologation of the compensation when the declaration presented by the taxpayer is falsified.

The amount corresponding to the offsetting of debts related to the contributions referred to in art. 2 of Law No. 11,457 / 2007 will be passed on to the Fund of the General Social Security Regime within 30 (thirty) business days, counting from the date it is promoted from office or when the statement of compensation is presented

The offsetting of own debts related to any taxes and contributions administered by the Brazilian Internal Revenue Service applies to:

  • the offsetting of social security contributions of companies, domestic employers and workers, as well as the contributions made as substitution and those due to Third Parties (Other Entities and Funds) made by the taxpayer who uses the eSocial, to determine of these contributions
  • the debit of contributions from companies, domestic employers, workers, instituted as substitutes and those due to Third Parties
  • the debit of other taxes managed by RFB

It does not apply to the offsetting of contributions by companies, domestic employers, workers, established as substitutes and those due to Third Parties made by other taxpayers who do not use eSocial and neither to Household Simple.

 

These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!