Law nº 12.546 was published on December 14, 2011, consequent of Provisional Measure nº 540/11, which provided for the applicability of the social security contribution to the companies engaged in the footwear, apparel, leather, Information Technology (IT), Information and Communications Technology (ICT) and Call Center areas, and established the Special Regime of Reintegration of Tax Amounts for the Exporting Companies (Reintegração de Valores Tributários para as Empresas Exportadoras - REINTEGRA), among other measures.

With respect to Provisional Measure nº 540/11, the enacted law extended to December 31, 2014, the applicability of the social security contribution over the gross revenue amount at the rate of 2.5% substituting provisions in items I and III, art. 22, of Law nº 8.212/91 for the companies providing Information Technology (IT), Information and Communications Technology (ICT) and Call Center services.

The new system to pay the social security contribution does not cover the companies acting as representatives, distributors or dealers of computer software. And if the IT and ICT companies are also engaged in other activities, provisions in items I and III, art. 22, of Law nº 8.212/91 will apply to them, and the decrease of the social security contribution will be ensured to the extent of the relation between the gross revenue obtained from the activity not related to IT and ICT and the total gross revenue.

Provisional Measure nº 540/11 also provided that the footwear, apparel and leather industries would benefit from the substitution of the applicability of the social security contribution to the amount of the gross revenue at the rate of 1.5%. With the enactment of Law nº 12.546/11, there was not only the extension of the benefit to December 31, 2014 but the companies producing buttons, rivets and eyelets were also included in the new payment system; the furniture sector, however, was excluded.

In addition to the above changes, the enactment of Law nº 12.546/11 also brought changes that had not been provided in Provisional Measure nº 540/11.

The Law established the obligation to provide information for economic-commercial purposes to the Ministry of Development, Industry and Foreign Trade in connection with the transactions between those resident or domiciled in the Country and those resident or domiciled abroad involving services, intangibles and other operations producing variations to the property of individuals and legal entities.

Likewise, measures were established for the commercial protection of foreign trade by controlling the origin of the imported products to be checked by the Federal Police and the Secretary of Foreign Trade. The exporter/producer or the importer has to provide information in connection, among others, with:

I – the location of the producing establishment;

II – the operating capacity;

III – the manufacturing process;

IV – the raw materials used in the production; and

V – the rate of non-originating inputs used to obtain the product.

Finally, a presumed credit was established for the biodiesel producers amounting to 50% of the Contributions to the PIS and to the Confins applicable to the acquired inputs. Additionally, amendment to art. 1, §4, of Law nº 11.491/07 was vetoed, which ensured the investment of funds, from the FGTS Investment Funds, in projects related to the 2014 FIFA World Cup and to the 2016 Olympic Games.

(Law 12546, Dec. 14.2011 / DOU-I, Dec. 15.2011)


Derivatives contracts. Tax on Financial Operations (Imposto sobre Operações Financeiras – IOF)

Provisional Measure nº 539/11, issued with the objective of curbing bets against the dollar in the derivative markets, considered as a factor pushing the real appreciation up, determined the applicability of the one per cent (1%) rate as IOF on the acquisition, sale and settlement of derivatives contracts agreed based on the exchange variation. Such Provisional Measure was enacted as Law nº 12.543/11 in December of last year.

According to the established system, the maximum IOF rate applicable to the amount of the operations involving the derivatives contracts was set at twenty-five (25%). There is also the possibility of the exporting legal entity, in connection with the hedge operations, deducting from the IOF payable as a taxpayer, due in each period, the IOF calculated and paid over the notional amount agreed in the derivatives contracts.

If it is not possible to carry out such deduction, the exporting legal entity may request the rebate or the offsetting of the corresponding amount against taxes and contributions managed by the Brazilian Revenue Service, except for the social contributions of the companies applicable to the remuneration paid or credited to the insured individuals at their service, to those of the domestic employers and to workers, applicable to their contribution wage. The portion of the IOF that is deducted or offset will not be deductible for the purposes of determining the real profit and the basis for calculation of the Social Contribution over Net Profit (Contribuição Social sobre o Lucro Líquido - CSLL).

Further, the Law dismissed the IOF requirement over derivatives contracts in connection with tax events that took place between July 27, 2011 (date on which MP nº 539/11 was published) and September 15, 2011.

(Law 12543, Dec. 08.2011 / DOU-I, Dec. 09.2011)


Capital market taxation

Ruling Instruction nº 1.236, of January 11, 2012, changes provisions of Ruling Instruction nº 1.022/2010, which provides for the Income Tax applicable to net income and gains obtained in the financial and capital markets.

Among the main changes established by Ruling Instruction nº 1.236/11, is the taxation by the Income Tax of income obtained from the redemption of FIP-IE and FIPI-PD&I quotas. The applicable rates are: zero per cent (0%), when the income is obtained by an individual; and fifteen per cent (15%), when the income is obtained by a legal entity. These rates apply to operations accomplished in or out of the stock exchange.

Such Ruling Instruction also dealt with the taxation of bonds issued by a special purpose company organized to implement investment projects in the infrastructure area, or intensive economic production in research, development and innovation. It determined the applicability of the Income Tax, to be withheld at source, to income obtained by individuals or legal entities residing or domiciled in the Country. The individuals who obtained income with the redemption of the bonds will be subject to the zero rate Income Tax. The legal entities, in turn, will be subject to the withholding of fifteen per cent (15%) over the gain obtained with the redemption of the securities.

Finally, among other changes, Ruling Instruction n.º 1.236/12 also added to Ruling Instruction n.º 1.022/2010, articles 71-A and 72-A, to reduce to zero the income tax rate applicable to income from bonds and securities (investment fund and investment fund quota fund) acquired as of January 1st, 2011, object of a public distribution or issue of private legal entities not classified as financial institutions and governed by the Securities and Exchange Commission and by the Brazilian Monetary Council, when paid, credited, delivered or remitted to a beneficiary residing or domiciled abroad, except in a country where income is not taxed or taxed at a maximum rate below twenty per cent (20%).

(Ruling Instruction 1236, Jan. 11. 2012 / DOU-I, Jan. 12.2012)


Fifteen Declaratory Acts were published by the PGFN which released the Attorneys General of the Brazilian Treasury from submitting answers or appeals, and further authorizing them to desist from appeals already filed

In an attempt to reduce the number of litigations dealing with issues already judged by the STJ and by the STF, the Attorney General Office of the Brazilian Treasury (Procuradoria Geral da Fazenda Nacional – PGFN) published fifteen Declaratory Acts so that the Attorneys may be released from presenting answers and appeals, and they may desist from appeals already filed, in lawsuits dealing with certain issues where the Federation is the defeated party.

Some of those issues are extremely relevant, such as the exclusion of the late payment fine in the event of spontaneous denouncement, based on the opinion that there is no difference between late payment and punitive fine. Additionally, it has been accepted as spontaneous denouncement the case where the taxpayers, after partial statement of the debt (subject to assessment by homologation), accompanied by the respective payment, submit rectification announcing (before a tax administration proceeding) the existence of an excess payment, the settlement of which takes place concurrently.

Also included in the release is the applicability of the Income Tax to the monies received as damages by the individual; the non-applicability of the social security contribution over the sole bonus provided in labor Collective Convention, separate from the wage and not habitually paid; and the immunity of any income and capital gains received from financial investments by the education and social assistance non-profit organizations.

(PGFN Declaratory Acts. Available at: Access in: Jan. 2012)


CONFAZ defines ICMS benefits for operations and provisions related to the 2013 Fifa Confederations Cup and to the 2014 Fifa World Cup

ICMS Convention 142/2011 was published on Dec. 21, 2011, by means of which the ICMS incentives granted to operations related to the 2013 Confederations Cup and to the 2014 World Cup were defined. Such ICMS Convention determined the suspension/exemption of the ICMS applicable to importations, domestic and inter-state operations, according to specific terms and conditions. The new ICMS benefits were based on benefits granted by the federal legislation by means of Federal Law nº 12.350/2010, requiring also that the operations and provisions be conditioned to be exempted from at least one of the federal taxes applicable to them.

(ICMS Convention 142, Dec. 16.2011 / DOU-I, Dec. 21.2011)


Extension of the term to use the Simplified Calculation Method of ICMS accumulated credits in the State of São Paulo

Decree 57.675/2011 was published on Dec. 27, 2011 and extended the term for using the Simplified Calculation System of ICMS accumulated credits in the State of São Paulo, provided in article 30 of the ICMS Regulation Transitory Provisions. In this context, such system, previously provided for the credit accumulated between April/2010 and December/2011, may be used to calculate the credit accumulated in the period from April 2010 to December 2012, the appropriation of which must be submitted by the last business day of January 2013.

(Decree 57675, Dec. 26. 2011 / DOE-SP, Dec. 27. 2011)


RICMS. Changes. Maintaining credit upon the exit of products to free trade areas. Reduction of the basis for calculation in access to the Internet

On Nov. 28.2011, Decree 57.684/2011 was published, which changed the ICMS Regulation of the State of São Paulo. The main changes brought by such decree refer to the possibility of maintaining ICMS credits in connection with the exit of products to be sold or processed in the Free Trade Areas and it also revoked the reduction of the basis for calculation provided in article 23, Attachment II of the ICMS Regulation.

Among the changes was the permission to maintain the ICMS credits in connection with the exit of manufactured products or semi-prepared products of domestic origin, to be sold or processed in the Free Trade Areas of Macapá and Santana, in the State of Amapá, and Bonfim and Boa Vista, in the State of Roraima, conditioned to the organization of the destination inspection facilities located in the Free Trade Areas, in the terms of Protocol ICMS-52/11.

Another main change brought by such Decree revoked, effective on Apr. 1st, 2012, article 23, Attachment II, of the ICMS Regulation. Such provision grants a reduction of the ICMS basis for calculation applicable to the onerous provision of communications services, under the modality of access to the Internet, so that the tax burden results in a percentage corresponding to 5% of the amount of the services provision. It should be reminded that the Superior Court of Justice has already handed down various decisions to the effect dismissing the ICMS applicability to the provision of Internet access services.

(Decree 57684, Dec. 27. 2011 / DOE-SP, Dec. 28. 2011)


New system for the return of undue ICMS debits to companies providing telecommunications services

Published on January 19, CAT Administrative Ruling nº 05/2012 introduced a new special system to return the undue ICMS debits to companies providing telecommunications services, substituting the procedure provided in art. 10, Attachment XVII, of the ICMS Regulation. The companies listed in OTEPE/ICMS Act nº 10/08 and which have not chosen the previous special system provided in CAT Administrative Ruling 145/2009 may adhere to the new system.

The companies adhering to this system will be entitled to use a monthly credit amounting to 1% of the total amount of the tax debited in Sales Bills of Communications Services (Notas Fiscais de Serviço de Comunicação - NFSC - model 21) and Sales Bills of Telecommunications Services (Notas Fiscais de Serviço de Telecomunicações - NFST - model 22), issued in the calculation period in the terms of CAT Administrative Ruling -79/2003 – applicable only to provisions subject to the ICMS in São Paulo.

The time limit to make the option ends on February 15, 2012 – the option is irretrievable and will encompass all sales bills issued between January 1st, 2012 and December 31st, 2012. The return of the tax amount unduly debited in connection with the calculation period prior to January 1st, 2012, must follow the procedure established in CAT Administrative Ruling 06/2009.

Those who have adhered to the system will waive the right to any credit or debit return, in connection with the tax documents issued by the company between January 1st, 2012 and the end of the validity of the special system, in order to offset any undue debit entry. Additionally, changing to a higher amount will not be admitted in the event of substitution of the GIA/ICMS.

The system may be cancelled in the event of omission or error of the GIA/ICMS or if the debt is listed for collection, except in the case of a guarantee by deposit in court or administrative proceeding or attachment of assets. In case these situations are corrected, the return to the system may be requested, with retroactive effects to the date it was cancelled.

(CAT Administrative Ruling 05, Jan. 19.2012 / DOE-SP Jan. 20.2012).


Tax substitution system to retail companies. Regulation

The retail companies that carry out operations through distribution centers in São Paulo and which hold the special system provided in State Decree 57.608/2011 (which gives them the tax substitute status), will have to adopt, for each item of the goods that is sold, one sole code, which will be the standard code of the respective goods stated in the information provided by the establishment to perform its accessory obligations.

Additionally, with due regard to the specific conditions set forth in §1, of CAT Administrative Ruling 06/2012, these companies must prepare, validate and provide the Treasury Secretary with the digital files in connection with:

(i) Inventory of goods subject to the tax substitution system, as existing on the last day of each month of the calendar quarter, called "MONTHLY RE-INVENTORY";

(ii) Inventory of goods subject to the tax substitution system, existing at the end of the day prior to the beginning of the validity of the special system, called "PRIOR DAY RE-INVENTORY DAY";

(iii) Linking the GTIN-EAN-13 standard-code and the adopted proper code, as well as the conversion factor of the selling units;

(iv) Annual inventory;

(v) Proper code given to the goods, for the purposes of identification of their supplier, in the event the holder of the special system acquires certain goods both from a substitute taxpayer and from a substituted taxpayer.

During the validity period of the system, the bookkeeping of the ICMS credits must comply with provisions in item III, art. 1, of the administrative ruling, and the exit of goods must have their respective tax documents issued and written down as set forth in articles 273, 275, 276 and 277 of the ICMS Regulation imposed on debtors by substitution.

Moreover, in the event the tax substitute is no longer qualified to the special system, the rules in CAT Administrative Ruling 44/08 continue applicable (considering as the date of calculating the inventory the date prior to the date when it lost qualification for the special system).

(CAT Administrative Ruling 06, Jan. 19.2012 / DOE-SP Jan. 20.2012)


Injunctions release NFS-e in São Paulo

SMF/SP Ruling Instruction nº 19, of December 16, 2011, determined the suspension for the defaulting taxpayers of the authorization to issue the Electronic Sales Invoice (Nota Fiscal de Serviços Eletrônica - NFS-e), within the scope of the Municipality of São Paulo. Such Ruling Instruction provides for the suspension, beginning on January 1st, 2012, of the authorization to issue the NFS-e for the taxpayers who failed to comply with their ISS obligations for four (4) consecutive months or six (6) alternate months, for one (1) year.

Based on provisions set forth in SMF/SP Ruling Instruction nº 16/2011, the Municipality of São Paulo blocked the issuance of the NFS-e of various taxpayers, however, it has been obliged to release the issuance of such Sales Invoice by three (3) companies that, by means of a writ of security filed with the courts in the State of São Paulo, obtained decisions favorable to the release to issue the NFS-e.

Such decisions were handed down on the grounds (i) that there were other juridical means available to the Municipality of São Paulo to charge the ISS due by the taxpayers; and (ii) of the guarantees ensured by the Federal Constitution to free performance of economic activity and to the freedom of professional performance.

(Ruling Instruction SMF/SP 19, Dec. 16.2011 / DOCIDADE-SP Dec. 17.2011, rectified on Dec. 20.2011; SMF/SP Ruling Instruction 16, Nov. 03., 2011 / DOCIDADE-SP, Nov. 04.2011; Injunctions release issuance of sales bill. Valor Econômico. Jan. 12.2012 p. E1)


Administration of the City of São Paulo suspends authorization to issue Electronic Services Sales Invoices for defaulting taxpayers

The Municipality of São Paulo, by means of SMF/SP Ruling Instruction nº 19, of Dec. 16.2011, suspended the authorization for the issuance of the electronic Sales Invoices for taxpayers in default with the Tax on Services beginning on Jan. 1st this year.

The corporate taxpayer is considered in default when failing to pay the ISS for 4 consecutive months or for 6 alternate months during the period of one year. In order to issue the Sales Invoice again, the taxpayers cannot be more than three subsequent months in default or five alternate months.

Legal entities and residential or commercial condominiums established in the Municipality of São Paulo which retain services from companies with suspended authorization must fill in the Electronic Sales Invoice of the User / Intermediary of the Services (Nota Fiscal Eletrônica do Tomador / Intermediário de Serviços - NFTS), withhold and pay the ISS.

(Ruling Instruction SMF/SP 19, Dec. 16.2011 / DOCIDADE-SP Dec. 17.2011; rectification, Dec. 20.2011)


General repercussion

The Federal Supreme Court has acknowledged the general repercussion of the proceeding seeking the applicability of the ISS in radio-call secretary operations, also known as packing or pager or beeper services, in the light of the constitutional concepts of services and communications (Extraordinary Appeal nº 660.970).

It has also acknowledged the general repercussion of the applicability of the reciprocal immunity to the entity with a shareholding structure, traded on the Stock Exchange, that shows the unmistakable objective of distributing profits to public and private investors (Extraordinary Appeal nº 600.867).

The Federal Supreme Court will judge, in the Record of Extraordinary Appeal with Interlocutory Appeal nº 665.134, whether there is or not general repercussion in the proceeding dealing with determining the constitutional authority to tax the ICMS applicable to the following operation: importing raw material to be processed by an establishment located in the State of Minas Gerais and which is cleared by an establishment located in the State of São Paulo, which is the destination of the finished product and which will carry out the subsequent sale.

The Federal Supreme Court will also judge, in the Record of Extraordinary Appeal nº 612.707, the existence of general repercussion of the proceeding dealing with the "breaking" of the chronological payment order, established by the Federal Constitution, when there is payment of a portion of the credits included in art. 78 of the ADCT before the full satisfaction of alimony credits.

(RE 660.970, RE 600.867, ARE 665.134, RE 612.707 Available at: Access in: Jan. 2012)


STF Judgment of the tax liability of partners and managers

The Second Panel of the Federal Supreme Court, when judging in the record of Regulatory Appeal in Extraordinary Appeal nº 608.426, established opinion to the effect that the partners and managers may only be personally held liable for the tax debts of the legal entity if they have been granted the opportunity to discuss the legitimacy of the constitution of the tax credit since the administrative stage, ensuring them the rights to full defense and to the adversary system. In the actual case, the partner/manager appeared in the proceeding.

(Regulatory Appeal in Extraordinary Appeal 608.426. Available at: Access in: Jan. 2012)


Tax War

In a panel decision handed down in the record of the Appeal in Writ of Security nº 32.937, the first panel of the Superior Court of Justice decided that the State of Mato Grosso cannot limit the crediting of the ICMS due to the Federal District to a percentage lower than the 12% rate, in connection with the tax substitution in interstate operations, in the event of deferral of the payment of the tax authorized by the Pro-DF Program.

The argument used by the taxpayer is that the mere deferral of the tax payment cannot limit the ICMS crediting, because though such tax benefit exists, even so the amount is due to the state of origin. The argument of the State of Mato Grosso is that there is no ICMS crediting in the event where there is no effective payment of the tax, and that the right to the full crediting of ICMS depends on a prior agreement signed by the states involved in the interstate operation.

Reviewing Justice Benedito Gonçalves states that amount due‟, an expression contemplated in the Federal Constitution and in Complementary Law nº 87/96, cannot be confounded with effectively paid tax‟. He also alleges that the tax benefit granted by the Federal District differs from the exemption or from non-applicability, situations where there is no amount due‟. Finally, he concludes that thinking otherwise would authorize double-taxation, since the benefit granted by the state of origin does not release the taxpayer from the payment of the ICMS and, additionally, it would allow the destination state to take the tax incentive for itself, conspiring against the tax autonomy of the states of the federation.

(Appeal in Writ of Security 32.937. Available at: Access in: Jan. 2012)


STJ upholds final decision, in spite of the mistake when applying STF precedent

On December 16, 2011, a higher decision was published by the First Panel of the Superior Court of Justice having as object a discussion about upholding the final and unappealable decision in connection with the mistake when applying STF precedent by the lower Court.

The lower Court granted relief to the request to release the court deposits made by the taxpayer of the amounts being discussed because the judgment that had granted the security claimed by a private social security entity to guarantee its right of not submitting itself to the payment of the Contributions to the PIS and Cofins, pursuant to art. 3, §1, of Law nº 9.718/98, by virtue of the STF declaration of unconstitutionality in diffuse control, was res judicata.

The Attorney General Office of the Treasury objected to the granting of relief to the request to release the deposit and submitted appeal. The issue was brought to the Federal Court of Appeals of the 4th Region and revision of the merit of the decision was determined because the private social security organizations, though on a par with the financial institutions, are submitted to their own regulation, paying the contribution to the PIS and to Cofins based on the caption and §§ 5 and 6, art. 3, of Law nº 9.718/98, therefore the declaration of unconstitutionality of § 1, art. 3, of Law nº 9.718/98 by the Federal Supreme Court is irrelevant.

In view of such decision, the Taxpayer submitted Appeal to the Superior Court of Justice arguing the appropriateness of the final decision.

In this context, though Reviewing Justice Napoleão Nunes Maia Filho had acknowledged the evident mistake of the decision that was res judicata, releasing the private social security organization from the payment of the contribution to the PIS and Cofins, the taxpayer´s appeal to re-establish the lower court judgment and grant relief to release the court deposits, in view of the impossibility of revision of the thing judged at this state of the procedural phase, was granted partial relief.

(Direct Appeal 1.227.655 - SC (2011/0000689-1). / DJe Dec. 16.2011. Available at: Access in: Jan.2012)

TRF 3rd

Judgment prevents Brazilian Revenue Service from applying 50% fine

A decision by the 14th Court of the Federal Justice in São Paulo prevented the Brazilian Revenue Service from applying the isolated fine of 50% over the requests for the offsetting or return of the federal tax credits considered undue.

The fine, established by art. 74, § 15, of Law nº 9430, of Dec. 27.1996, is applied to the debtor who has its offsetting request for homologation denied. The grounds used in the decision were that the fine could only be applied when the Revenue Service proves that the taxpayer acted in bad faith. Because the rule affects the taxpayers acting in good faith, the unconstitutionality of this point is unmistakable.

(Case 0005054-72.2011.4.03.6100. Available at: Access in: Jan. 2012 / Judgment prevents Revenue Service from applying 50% fine. Valor Econômico, Jan. 13.2012, p. E1)

TRF 3rd

Decision within the scope of the Federal Court of Appeals of the Third Region suspends conversion of court deposit into income of the Federation in the case of adhesion to the REFIS

By means of a single-judge court decision handed down by the Higher Court Judge of the Federal Court of Appeals of the 3rd Region, suspension effect was given to the lower court decision that had determined the conversion into income of the Federation the amount of the court deposit referring to the principal of the debt discussed in the record (IRPJ), delaying for a time after the consolidation of the debt the decision about any release, under the REFIS system.

The Higher Court Judge was of the opinion that the conversion into income of the Federation would cause irreversible effect, like the taxpayer´s request to release the residual amount of the deposits. Therefore, the request was granted partial relief to suspend the conversion of the deposits, keeping the amount in the Court account until a later decision. .

(Interlocutory Appeal 0009742-44.2011.4.03.0000; Ordinary Action nº 0000747-32.1998.4.03.6100. Available at: Access in: Jan. 2012)


The Taxes and Fees Court of São Paulo acknowledged the non-existence of delay in the case of debt suspended by virtue of court decision

The 11th Judging Chamber of the Taxes and Fees Court (Tribunal de Impostos e Taxas – "TIT") published a panel decision acknowledging the non-existence of delay in connection with debt which payment was suspended by virtue of injunction granted in the Record of Declaratory Action seeking the acknowledgment of the immunity in operations to import goods and service. The Assessment Notice that gave origin to the administrative proceeding was drawn up with the purpose of preventing lapse of time.

In view of the existence of the lawsuit, the administrative appeal was not examined with respect to its merit – on the other hand, the impossibility of demanding amounts as fine was analyzed, when there is court provision supporting the taxpayer´s conduct.

The decision, contrary to prevailing case law in the TIT itself, was adopted by majority of votes and may be used as a paradigm for the purposes of appeal to the Superior Chamber.

(Case DRTC III – 429170/2010 – 11th Judging Chamber. Available at: Access in: Jan. 2011)


Taxes and Fees Court dismisses punitive fine and interest

A panel decision was published on Jan. 09, 2012, by the 12th Judging Chamber of the Taxes and Fees Court in the State of São Paulo cancelling the punitive fine and interest contemplated in the assessment notice aimed at rejecting ICMS credits in connection with the acquisition of electric power. The taxpayer had filed an Ordinary Action with request for preliminary injunction to the Judiciary. Such request was granted relief. Later on, a favorable decision was handed down by the lower court judge, which was reverted by the Court of Appeals of the State of São Paulo. At the time of the decision, the taxpayer was waiting judgment of its

Motion for Clarification. Accordingly, because of the discussion in the judicial sphere, which had granted the preliminary injunction, the administrative judges, by casting vote, decided to dismiss the imposition of punitive fine and interest.

(Case DRT-14-38353/2006 AIIM 3046552-7. Available at: Access in: Jan. 2011)


Stay of appeals at the CARF dealing with matters object of appeals also stayed by the Federal Supreme Court

CARF Administrative Ruling nº 001 was published in January 2012 to clarify the Internal Regulation of that Court, with respect to the stay of appeals.

The CARF internal regulation already provided that the judgment of appeals must be stayed when dealing with issues object of extraordinary appeals stayed by the Federal Supreme Court.

A few Board Members, however, believed that it was enough for the Federal Supreme Court to apply general repercussion to suspend the judgments within the administrative scope. The Administrative Ruling came to clarify that the stay procedure may only be applied to the proceedings that have been expressly stayed by the Federal Supreme Court, irrespective of the acknowledgment of general repercussion.

Additionally, such Administrative Ruling clarifies that the issues that were stayed will only be released for judgment at the CARF after they are res judicata at the Federal Supreme Court.

(CARF Administrative Ruling 001, Jan. 03. 2012).


Goodwill consequent of operation carried out with various corporate acts on the same date and without supporting expert report is not deductible, for the purposes of the IRPJ and CSLL. The financial expenses assumed by the invested company to make feasible the operation that ended up with its merger is also not deductible from the IRPJ and CSLL basis for calculation of the surviving company

The 1st Chamber of the Board of Taxpayers (currently Administrative Board of Tax Appeals, Conselho Administrativo de Recursos Fiscais – "CARF") handed down judgment on Jun. 18, 2009, by majority of votes, deciding for (i) the impossibility of amortizing the goodwill consequent of the operation in question, and (ii) the non-deductibility of the financial expenses consequent of the financing obtained to make the operation feasible, by reason of its nature of not being necessary to the surviving company, for the purposes of computing the basis for calculation of the Corporate Income Tax (Imposto de Renda da Pessoa Jurídica - "IRPJ") and of the Social Contribution on the Net Profit (Contribuição Social sobre o Lucro Líquido - "CSLL").

The assessment refers to considering as necessary expenses when computing the IRPJ and the CSLL in calendar years from 2003 to 2006 (i) the financial expenses with loans and financing obtained to make the operation feasible, because assuming such liability would have taken place by mere liberality, something that would prevent its deduction for tax purposes; and (ii) the undue amortization of the goodwill when acquiring the company because (a) the legal requirements to ensure its deductibility were not fulfilled (absence of evaluation report) and (b) its origin takes place in the acquisition of shares of the taxpayer itself, something that would prevent the accounting (and deduction) of such goodwill.

The taxpayer alleged that (i) the surviving company (the company that received the tax assessment) received the totality of the net assets of the merged company, among them were bank debts obtained to make the operation feasible (loans and financing). Thus the deductibility of such amounts is justified by universal succession of assets, rights and obligations of the succeeded company. Therefore, it is not, by any means, a mere liberality, because there was no mere free assumption of a debt but, rather, a corporate operation of merger, with the succession of rights and obligations.

With respect to the (ii) goodwill, it would have been "paid" upon the share exchange operation of the companies involved. As a consequence of such operation, the amount "paid" was broken down into (a) net asset amount of the merged company; and (b) operation goodwill amount. Such goodwill would be based on the expectation of the future profitability of the merged company and was calculated based on the discounted cash flow methodology.

Finally, it alleged that (iii) the concepts of abuse of form and lack of business purpose do not apply because the operations were effectively carried out and there are no legal grounds for the application of such concepts.

On the other hand, the Tax Authority alleged that, (i) after analyzing the Corporate Income Tax Statement (Declaração de Imposto de Renda da Pessoa Jurídica - "DIPJ"), it was observed that a company that had no operating activity before the share exchange operation was used, something that would disqualify it as a business company, based on the legislation in force (art. 966 and 981 of the Civil Code).

In this context, the exchange in question would have occurred between an effective investment and a company without any business activity. Accordingly, in spite of the formalities observed, one cannot validate an operation with a legal entity that has its capital increased without any business activity and is "exchanged" on the same day with another investment. If the company´s operating condition could be proved, the operation would be characterized as an exchange of stake in enterprises. Accordingly, once the operation is not characterized as an acquisition of the company, the goodwill is not acknowledged as being valid.

It also alleged that (ii) the financial expenses being analyzed are non-deductible, because the burden of an obligation was transferred to the surviving company which should be of the actual beneficiaries of the acquisition of shares of such company.

The prevailing vote emphasized that the corporate operations carried out on Dec. 12, 2002 and Mar. 20, 2003, aimed at: (a) trying to make possible the deductibility of the goodwill amortization by the surviving company, which was initially accounted at the merged company, consequent of the share exchange; and (b) ensuring the deductibility of the financial expenses in connection with the loan agreement obtained to make the operation feasible.

The judgment states that the taxpayer resorted only to an "Internal Report of Economic-Financial Evaluation", prepared by the assessed taxpayer itself, and in the case in the court record, it would be necessary to submit a supporting report, prepared by three experts or by a specialized company, as provided in art. 8 of Law n. 6.404/76.

Additionally, one cannot admit that a company assumes liabilities in connection with loans and financing without receiving any economic-financial advantage. The abuse of form and of law would be characterized, as well as the absence of transaction purpose.

So the conclusion is that the goodwill amortization was considered undue, by reason of the non-compliance with the legal requirements that would make possible enjoying it. With respect to the financial expenses, they were assumed by the company by mere liberality, something that destroys its nature of being necessary, ordinary and usual, therefore they are non-deductible for the purposes of calculating the IRPJ and CSLL.

(Panel Decision 101-00.120)


JCP payment must adhere to the accrual basis method

On Nov. 11/2010 the 1st Panel of the 2nd Chamber of the 1st Section of the Administrative Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais – CARF) handed down judgment that, by majority of votes, decided for the impossibility of considering as expenses, when calculating the basis for calculation of the IRPJ and CSLL, the amounts paid as Interest on Own Capital (Juros sobre Capital Próprio - "JCP") in the calendar year subsequent to its verification.

The assessment refers to the acknowledgment, in calendar year 1999, of amounts related to the JCP of 1997 and 1998. According to the inspecting authority, the expenses with JCP could only be deductible in the respective verification year, always according to the accrual basis method. The taxpayer, in turn, alleged that there would be no prohibition of the deductibility of expenses with the JCP of prior periods, because there is no legal provision in this respect.

The defeated vote argued that the JCP does not have the nature of dividends, following the STJ guidelines. Considering that they are different institutes, there would be no obligation to pay the JCP in the same year that it was obtained, as it effectively occurs with the dividends. Accordingly, the defeated vote concludes that nothing prevents the JCP accumulated distribution once it is proved, every year, that the respective amount may be distributed, taking into account the existing parameters in the calendar year when the respective distribution was resolved.

The prevailing vote emphasized that the accounting record of legal entities must follow what is provided for in art. 177 of Law nº 6.404/76, that is, the revenues and expenses must be acknowledged at the time they are obtained or incurred, irrespective of being received or paid. Thus the accrual basis method would be, therefore, the rule for the acknowledgment of the companies´ revenues and expenses, whereas the cash basis system would be the exception and should be adopted only when expressly established in the legislation. Moreover, because the legislation concerning the deductibility of the JCP has not established the exception to the accrual basis system, the latter should be observed to the detriment of the cash basis method.

Therefore, because in this case the taxpayer deducted the expenses with interest on own capital in calendar year 1999, which by force of the accrual basis method should only be taken to the result of the years 1997 and 1998, the assessment was maintained.

(Panel Decision 120100.348 – 2nd Chamber / 1st Ordinary Panel)


Organization of split, merged and consolidated companies comes before its registration with the state board of trade

The General Coordination of Taxation of the Brazilian Tax Revenue Service (Coordenação-Geral de Tributação da Receita Federal - Cosit) clarified to the tax authorities that the date when the incorporation document is signed, in the cases of split, merger or consolidation, corresponds to the initial time of the new company, and not its registration with the state board of trade. The Cosit points out, however, that the presentation of the incorporation document must take place no later than 30 days from the date it was signed.

This position finds support in the Brazilian Tax Code, which does not require the regular incorporation of the legal entity so that it may be subject to the tax payments. The Income Tax Regulation, expressly considers the date when the company resulting from such process is incorporated as the one on which the partners resolved on the split, merger or consolidation.

(Internal Enquire Solution 1 – Cosit, Jan. 06.2012 / D.O.U. Jan. 24.2012)

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