Brazil: RFB Normative Rule No. 3 / Concept Of Gross Revenue / Sale Of Goods And Provision Of Services – Financial Institutions And Nonfinancial Companies Of The Group

Normative Rule of the Federal Revenue of Brazil (RFB) no. 3 was published at the end of November 2012, whereby the RFB clarified the technical concept of "gross revenue" for tax purposes, as "revenue deriving from the sale of goods in own-account transactions; revenue deriving from the rendering of services in general".

Although the Federal Revenue of Brazil was dealing with this concept with regard to the levy of the Social Security Contribution provided for in articles 7 to 9 of Law no. 12,546/2011, the fact is that this position applies to all contributions that have "gross revenue" as their tax basis, as is the case of the PIS and COFINS collected pursuant to Law no. 9,718/98.

So much so that in item 8 of the Normative Rule in question, the Tax Authorities resort to the PIS and COFINS' legislation "since both also have as levy event the reception of revenues by a legal entity."

Such rule represents the official position of the Federal Revenue of Brazil, meaning that the contributions charged on the "gross revenue" only reach the sale of goods and/or the provision of services, that is, in the very words of the RFB, "the definition of gross revenue as established in the legislation of the Tax on Income and Earnings of Any Nature".

Therefore, we believe that Normative Rule no. 3 may be invoked as grounds to rule out the charge of the PIS and COFINS on financial revenues in relation to non-financial companies whose business purpose is the trade of securities in general (assessed under the argument that the financial revenues originated from their "typical activities", along the lines of Justice Peluso's opinion in Extraordinary Appeal [RE] no. 357.950), and may be invoked by the financial companies in order to suspend the enforceability of the taxes, in case the Tax Authorities uses only this same argument in the proceedings in progress. Furthermore, depending on the concrete situation, our opinion is that it is possible to file provisional measures with such purpose, in that with the express recognition of the Federal Revenue of Brazil on the mentioned concept, there is no controversial dispute on the possibility of considering as "gross revenue" any and all revenue arising from the exploration of typical activities of legal entities.

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