Brazilian IRS Clarifies Taxation of Credits Originated from a Court Decision

On December 19, 2023, the Brazilian IRS published COSIT Answer to Advance Tax Ruling Request No. 308/2023 to clarify the Federal Tax Administration’s position regarding the levy of IRPJ, CSLL, PIS and COFINS on credits accrued from a court decision that recognized unduly paid tax.

The Brazilian IRS reaffirmed that the taxpayer:

• Must pay IRPJ and CSLL on the taxes to be recovered
• Does not need to pay PIS and COFINS on the taxes to be recovered (however, the interest on the unduly paid taxes is subject to PIS and COFINS)

Thus, COSIT Answer to Advance Tax Ruling Request No. 308/2023 reiterated that if the credits were recognized by an illiquid court ruling, the recognition of revenue for taxation purposes is due at the time of transmission of the first offset declaration.

However, if the taxpayer writes down the credits before the transmission of the first offset declaration, the taxes must be collected at the time of that writing.