The following article was kindly provided by Attorney Glaucio Pellegrino Grottoli from the Brazilian law firm of Peixoto e Cury Advogados in São Paulo, Brazil.
Last week the Brazilian Government granted Brazilian Taxpayers a series of important benefits to enhance the economic activity. Below we explain in details each one of the benefits.
(i) Companies can now deduct , as current expenses, from the calculation basis of the Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) donations or patronage directed to institutions who prevent or fight cancer. The donation or patronage can also be made to institutions that treat people with disabilities. For individuals 100% of the donations and 80% of the patronage can be deducted from the calculation basis up to the cap of 6% of the tax due annually. For companies the deduction allowed are 50% for donations and 40% for the patronage up to the limit of 4% of the tax due and be taxed by the Real Profit method.
(ii) When IT companies sell hardware, software or technical assistance to public schools via public deeds there will be exemption of Excise Tax (IPI) and the revenue derived from the sales and services will not be subjected to the taxation of the Social Contributions on Gross Revenues ( PIS/COFINS ). This benefit also applies when IT companies provide goods and services to non-profit institutions or schools that provide learning to persons with some kind of disability.
(iii) In order to grant broadband access to the Internet a benefit related to construction projects was also part of the tax package. Brazilian companies who sell machinery, apparatus, instruments and equipment and building materials that will be incorporated in projects approved by the government, the Excise Tax (IPI) will be exempt and the revenues derived from those sales will not be subjected to the taxation of the Social Contributions on Gross Revenues ( PIS/COFINS). This benefit also applies to services provided to companies with an infrastructure project approved by the Brazilian Government.
(iv) Automotive industries that invest in technological innovation (as defined by the Brazilian Law) can now use a presumed credit of the excise tax in order to encourage the development of the industry in Brazil.
(v) The transfer pricing rules were substantially amended:
1. The method applicable in importations named “Resale price plus profit margin (PRL)” provided a profit margin of 60%. This margin was reduced to 20% (generally), 30% for chemical products, glass and glass products, cellulose, paper and paper products and metallurgy), and 40% for pharmaceutical chemicals and pharmaceutical, tobacco, equipment and optical instruments, photographic and cinematographic, of petroleum products, trade in machinery, apparatus and equipment for using in dental, medical and hospital services, and the extraction of petroleum and natural gas).
2. Standardization of rules for the calculation, regardless of whether the production process (adding value) is located in Brazil or not.
3. The freight and insurance paid by the importer, hired from a non-related company, can be excluded from the calculation method of transfer pricing. If the freight or insurance company is resident in a tax haven, the rule is not applicable.
4. Two new methods were established only for companies that import or export commodities. The methods use the stock market listing prices as the parameter price of the commodities. Considering that more than 60% of the exportation in Brazil are commodities, this benefits have been celebrated by taxpayers.
5. The interest paid on loans between related parties is now the Libor rate added of a variable spread rate defined by the Brazilian Central Bank (the old rule was the Libor rate plus a fixed rate of 3%), so if the interest obeys the new rule the financial expense will be deductible for IRPJ and CSLL.
6. Important: The automatic interest deductibility of loan agreements between related parties, if the agreement was registered in the Central Bank, was revoked. Now, the interest will be deductible only if rule “5” is obeyed.
7. This rule is mandatory for 2013, but can optionally be applied in 2012 by the taxpayer.
(vi) Social Contribution on Payroll exemption – Since December 2011, the government has granted exemption on the Social Contribution on Payroll (20%) in exchange of a new tax on Gross Revenue in order to eliminate the informality (employee without the proper registration) in certain sectors of the economy listed below:
a) IT Companies and Hotels:
1. For IT companies, the benefit has been granted since December, but the Law has extended the benefit to call centers and design and development or design of integrated circuits companies. The benefit is also applied to Hotels;
2. Since December, the Contribution on Gross Revenue in exchange of the payroll tax, has been fixed at a 2,5% rate, but from August 2012, the rate will be reduced to 2%;
1. For some sectors of the economy, the benefit has been granted since December, but the Law has extended the benefit to other industries such as: Pharmaceutical, chemical, plastic, rubber, hides and skins, textiles, automotive, metallurgy, electronics and consumer goods;
2. Since December, the Contribution on Gross Revenue in exchange of the payroll tax has been fixed at a 1,5% rate, but from August 2012, the rate will be reduced to 1%;
(vii) If a company has 50% of the gross revenue derived from exportation of goods, it can purchase inputs with suspension of the Excise Tax (IPI) and Social Contribution on Gross Revenue (PIS/COFINS), before the new regulations the percentage of the gross revenue derived from exportation was 70%.”
Glaucio Pellegrino Grottoli
Peixoto e Cury Advogados
Rua Mário Amaral, 20504002-020 - São Paulo - SP
55 (11) 3218-8444
55 (11) 3051-5696