Global Tax Alert (News from Americas Tax Center) | 16 October 2013

Brazil offers new special amnesty programs

  • Share

On 10 October 2013, Law 12,865 came into force in Brazil, providing for specific rules regarding the expected amnesty programs targeting companies that carry open debts resulting from Provisional Measure 2,158-35/2001, Article 74. The law also established amnesty conditions regarding financial institutions and insurance companies’ turnover taxes (PIS – Social Integration Program and Cofins – Contribution to Social Security Financing), as well as reopened the application term for the so-called “Crisis Refis.”

The specific rules regarding each one of these programs are summarized below.

Cash payment or installment conditions

According to Law 12,865/2013, Article 40, items I and II, in case of Provisional Measure 2,158-35/2001, Article 74, the open debts to be included in the program (only those incurred by 31 December 2012) may be settled in two ways as illustrated below.

1. Cash paid with the reductions below:

Late payment and Ex-officio fines

100%

Isolated fines

100%

Late payment interests

100%

Legal charges

100%

2. 20% paid in cash and the remaining amount in 120 monthly installments, considering the following reductions:

Late payment and Ex-officio fines

80%

Isolated fines

80%

Late payment interests

40%

Legal charges

100%

The conditions for payment of financial institutions and insurance companies’ PIS and Cofins are provided for by Law 12,865/2013, Article 39. This specific program will also comprise only the debts incurred by 31 December 2012, which may be settled in the following manners.

1. Cash paid with the reductions below:

Late payment and Ex-officio fines

100%

Isolated fines

80%

Late payment interests

45%

Legal charges

100%

2. 20% paid in cash and the remaining amount in 60 monthly installments, considering the following reductions:

Late payment and Ex-officio fines

80%

Isolated fines

80%

Late payment interests

40%

Legal charges

100%

General Provisions

The payment or installment requirement must be made by 29 November 2013, independently of any guarantee submission.

The rules shown above are applicable to all debts, whether they are executable tax debts (i.e., debts enrolled in the federal government’s database as outstanding) or not, including the ones that are in a fiscal execution phase (i.e., a judicial motion was filed with the federal courts to charge the debts) and those that were already subjected to a prior amnesty program and are not fully paid yet.

Additionally, in order to be granted the benefits, the taxpayer must prove the express and irrevocable withdrawal from all judicial cases filed challenging the levying of the abovementioned taxes.

It is important to mention, moreover, that the judicial deposits related to the debts to be cash paid or subjected to installments will be automatically converted as final payment with the reductions mentioned above applied only to the remaining balance to be paid/subjected to installments.

Rescission

Under Law 12,865/2013, the amnesty may be rescinded and the amnesty benefits cancelled if:

  • Three installments, either consecutive or not are missed
  • Two consecutive installment payments are missed or the last installment payment is overdue

Case-by-case analysis

There are no doubts regarding the relevance of these two new amnesty programs, which present companies with an alternative to tax litigation already lasting more than 10 years. However, an analysis must be conducted to determine whether the amnesty programs are appropriate for a company.

Regarding the taxation of the profits resulting from foreign investments (investments in subsidiaries located overseas), the analysis on the merits may significantly vary depending on the factual specificities of the international structure of every company.

If the company fits the criteria already established by the Supreme Court within the Direct Unconstitutionality Motion 2,588, the decision on joining the amnesty program will be easier.

However, besides the discussions on the constitutionality of Article 74 of Provisional Measure 2,158-35/2001, there are also issues regarding the applicability of international tax treaties that were not solved by the Supreme Court. Given that the arguments vary depending on each situation, as well as on the applicable treaty, it is not possible to make a decision without the examination of each case.

Other relevant issues relate to the calculation of the: (1) potential exposure resulting from the lack of an add-back for corporate income tax (IRPJ and CSLL) purposes; or (2) profits obtained from a foreign subsidiary or foreign associate company. As legislation is complex and, in some cases, filled with gaps, many times there are doubts regarding the calculation of the exposure itself.

For financial institutions’ PIS and Cofins, even though there is less complexity when compared to the taxation of profits resulting from foreign investments, an analysis still should be completed.

The reopening of the “Crisis Refis”

Law 12,865/2013, Article 17, reopened, until 31 December 2013, the term for applying for the amnesty program provided for by Law 11,941/2009. This program is restricted to the tax debts incurred by 30 November 2008.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Serviços Tributários S.S., Rio de Janeiro
  • Sergio André Rocha
    +55 21 3263 7209
    sergio.andre@br.ey.com
Ernst & Young Serviços Tributários S.S., São Paulo
  • Pedro Custódio
    +55 11 2573 3683
    pedro.custodio@br.ey.com
  • Julio Assis
    +55 11 2573 5756
    julio.assis@br.ey.com

EYG no. CM3884