Brazil Tax News: Laws, Provisional Measures, Normative Instructions, and Bill of Law Approved at End of December 2023

Several new rules were approved on December 28, 2023, all extremely relevant to tax law. Our tax team summarizes some of the more relevant new rules below.

1) Provisional Measure nº 1202, of December 28, 2023: Revokes tax benefits, changes the social security payroll tax, and limits the offset of credits related to lawsuits

The Provisional Measure (“PM”) revokes the tax benefit of the Social Security Contribution on Gross Revenue (“CPRB”) and determines that from April 1, 2024, payroll will be gradually retaxed through the application of reduced tax rates on the Employer Social Security Contribution (“CPP”) until 2027 by companies whose CNAEs (activity codes) are included in the PM’s Annexes I and IIPM.

The rates (ranging between 10% and 18.75%) will be applied to the insured's contribution salary up to the value of one minimum wage, and companies that apply the reduced rates must sign a term agreeing to maintain a number of employees equal to or greater than the number verified on January 1 of each calendar year.

The PM also revoked the Events Sector Emergency Resumption Program (“Perse”) and established a monthly limitation for the offset of credit resulting from a final and unappealable court decision that exceeds the value of R$ 10 million. The limit will be established by an act of the Minister of State for Finance and cannot be less than 1/60 of the total value of the credit, demonstrated and updated on the date of remittance of the first declaration, which must be presented within 5 years from the date of the final and unappealable decision or approval of the withdrawal of the judicial title’s execution.

2) Law No. 14,787/2023: Extends the REPORTO’s regime until 2028

On December 29, 2023, Law No. 14,787 was published extending until December 31, 2028, the duration of the tax regime applicable to the modernization and expansion of the port infrastructure (“REPORTO”).

3) Law No. 14,788/2023: Extends tax benefits for the ZFM, the Western Amazon, and the ZFM IT law until 2073

On December 29, 2023, Law No. 14,788 was published extending until January 1, 2073, the effectiveness of the tax benefits granted within the Manaus Free-Trade Zone (“ZFM”) and the Western Amazon and of Law No. 8,387/1991, which grants tax incentives for computer goods and research and development programs developed in the ZFM (“ZFM IT Law”).

Those tax benefits are provided for in (i) Decree-Law No. 288/1967, which regulates the tax incentives in the ZFM; (ii) Decree-Law No. 356/1968, which extends the ZFM tax incentives to the Western Amazon areas; (iii) Decree-Law No. 1,435/1975, which amended the aforementioned Decree-Laws; and (iv) the ZFM IT Law.

These legislative changes aim to address the legal uncertainty regarding the term of validity of the tax regimes mentioned above; Constitutional Amendment No. 83/2014 had extended the validity of ZFM incentives for 50 years as of 2023 while Law No. 9,532/1997—amended by the recently published Law No. 14,788/2023—provided that the tax incentives for the Western Amazon areas would end in 2024. These parallel regulations created confusion about whether the 2024 deadline also applied to the ZFM IT Law’s tax incentives.

4) Complementary Law No. 204 of December 28, 2023: Addresses transfers of ICMS credits in interstate transfers of goods

This new law amends Complementary Law No. 87/96 (“Kandir Law”) to provide that ICMS is not levied on the transfer of goods between branches of the same legal entity, in line with what the Brazilian Supreme Court decided in ADC 49 (in an April 2019 trial).

This legislative change provides that the taxpayer must transfer the credit (limited to the interstate rate) to the State of Destination, maintaining the residual balance in the State of Origin.

The previous bill of law (PLP 116/23) allowed taxpayers to choose between the non levy of ICMS or taxing the transactions between branches owned by the same owner. The President of the Republic vetoed the specific provision (§5 of art. 12 of PLP 116/23) that authorized this option, and maintained only the non-levy of ICMS on the transactions and the maintenance of the credits.

The Complementary Law came into force on January 1, 2024.

5) Normative Instruction RFB N. 2,168/2023: Introduces rules for a special program to incentivize voluntary disclosure of federal tax liabilities

On December 29, 2023, Normative Instruction IRS No. 2,168/2023 was published to regulate a special program to incentivize the voluntary disclosure of federal tax liabilities to the Brazilian Federal Revenue (“RFB”) office, a program that was created by Law No. 14,470/2023.

The program will begin on January 2, 2024, and end on April 1, 2024. During those months, taxpayers can pay past-due taxes without having to pay late payment fines and ex officio and late payment interest.

Beneficiaries: natural persons and legal entities that are liable for RFB taxes.

Scope: (i) tax credits not recognized until November 30, 2023, even if the inspection procedure has already started; (ii) tax credits recognized between November 30, 2023, and April 1, 2024, even if the object of tax assessments, tax notices and overruling offsetting administrative decisions.

Exception: Debts derived from the SIMPLES program do not qualify.

Settlement method and benefits: full relief of penalties (late payment and ex-officio) and interest, under the condition that (i) cash payment of at least 50% of the consolidated debt on the date of the request, as a down payment; and (ii) the remaining amount paid in up to 48 monthly installments (with interest - Selic rate).

For purposes of upfront payment, the taxpayer can (i) use tax loss credits and negative CSLL calculation basis, limited to 50% of the value of the consolidated debt; and (ii) government court-ordered credits (own or acquired from third parties) recognized by res judicata.

If tax loss credits and a negative calculation base are used, RFB will have a period of up to 5 years for analysis, under penalty of implicit approval. In the event of rejection, the taxpayer may pay the outstanding balance in cash, plus the Selic rate, within 30 days, or file an appeal.

If court-ordered credits or credits arising from tax losses and negative CSLL calculation basis to controlled, controlling or associated legal entities are used:

(a) the gains or revenues registered by the transferor, eventually determined as a result of the assignment, will not be included in the calculation of the IRPJ, CSLL, PIS and COFINS calculation basis; and

(b) the losses registered by the transferor, eventually determined as a result of the assignment, will be considered deductible in the calculation of the IRPJ and CSLL calculation basis.

Deadline and formalization: Taxpayers must apply electronically in e-CAC between January 2, 2024, and April 1, 2024, providing with information on credits, payment method and use of tax loss/base negative calculation of CSLL/ government court-ordered, as well as proof of payment. An application without proof of payment will not be accepted.

Effects: The submission of the application implies irrevocable and irreversible extrajudicial confession of the debt, and the enforceability of the credit will be suspended during the application review, allowing the issuance of a tax clearance certificate.

Exclusion and Termination: While further clarification is expected from the RFB, exclusion from the program is foreseen in case of default with 3 consecutive installments, 6 alternating installments, or the final installment, even if all others have been paid. The exclusion is subject to appeal.

Taxation: When determining the calculation basis for IRPJ, CSLL, PIS and COFINS, the portion equivalent to the reduction in fines and interest as a result of Self-Regulation will not be computed.

6) Conversion of Provisional Measure No. 1,185/23 into Law No. 14,789/2023: Introduces new rules for subsidies for investments

On December 29, 2023, Law No. 14,789/2023 was published revoking the treatment for purposes of IRPJ and CSLL of subsidies for investments to implement or expand an economic enterprise and creating a new tax credit mechanism. In the new model, in the case of a subsidy for investment, the company will be able to obtain a tax credit corresponding to the product of the subsidy revenues and the 25% rate related to IRPJ, which will be used to offset federal taxes or to request cash reimbursement.

It is worth noting that, on December 29, 2023, Normative Instruction RFB No. 2,170/2023 was also published providing the rules for enrollment with the regime for using a tax credit resulting from a subsidy for investments referred to in Law No. 14,789/2023.

For tax contingencies related to previous rules on the subsidies for investment, the normative instruction establishes scenarios to apply for tax transactions and self-regularization, including the possibility of installments and discounts on the total value of the tax contingency. The value of the reduction varies according to the number of installments, with a maximum of an 80% reduction for payment in 12 installments.

In addition, the Law provides for changes to the calculation of Interest on Net Equity (JCP), provides for deemed PIS/COFINS credit for road passenger transport companies, and makes specific changes to the recently approved Law No. 14,754/23, in the part that dealt with “come-cotas” on the Participation Investment Fund.

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Besides the changes described above, also in December 2023, the National Congress approved several bills that were sent to the President for sanction or veto (partial or total). In the case of sanction, the text will be considered a law and effective after publication. In case of veto (partial or total), the controversial part returns to the National Congress, which can sanction the bill of law. Below we have highlighted the Bill of Law N. 2.646/2020 as one of the most important:

1) New Infrastructure Debentures - Bill of Law N. 2.646/2020 - Approved by the National Congress on December 13, 2023, but pending sanction or veto by the President of the Republic

The “New Infrastructure Debentures” grant a tax benefit to the issuer, which may reduce the IRPJ and CSLL tax base by an additional 30% of the interest paid to the debenture holders.

As a general rule, the income of the debenture holders of the New Infrastructure Debentures will be regularly taxed as fixed income (there are exceptions for some investment funds).

The tax benefit system is different from that in the old regime of Infrastructure Debentures (governed by Law 12,431/11), whose tax incentive is the grant of a tax exemption to the debenture holder (without any additional advantage to the issuer).

Thus, if this bill is passed into law, companies will have two complementary mechanisms for financing infrastructure investment projects: New Infrastructure Debentures (with benefits for the issuer) and the old regime of Infrastructure Debentures governed by Law 12,431/11. Each one has advantages and disadvantages depending on the specific case.

In addition, the bill makes specific adjustments to the rules applicable to the Infrastructure Equity Investment Fund (FIP-IE) and the Research, Development and Innovation Intensive Economic Production Equity Investment Fund (FIP-PD&I) and eases compliance with some of the requirements for the old Infrastructure debentures regime (Law 12,431/11).