Brazilian Law 13,097/2015, which extends some tax benefits and amends some tax rules, was published in the official gazette on January 20. Some of the most relevant measures for corporate taxpayers are summarized below.
Bad Debt Deduction
Law 13,097/2015 increases the amounts eligible for bad-debt deduction by companies under the Actual Method (Lucro Real)/1/ for the calculation of corporate income tax. The new amounts, which apply to debts in default after October 7, 2014 (the date of publication of Provisional Measure 656/2014, the precursor to Law 13,097/2015), are as follows:
- insolvent (financial) debtors: any amount as long as the insolvency has been declared by a court of law. This rule also applies for amounts in default before October 7, 2014;
- unguaranteed debts:
- up to BRL 15,000 (about $5,770) for amounts overdue more than six months (for amounts in default before October 7, 2014, the eligible amount is BRL 5,000);
- BRL 15,000 to BRL 100,000 for amounts overdue more than one year, provided that the taxpayer has administrative collection procedures (for amounts in default before October 7, 2014, the eligible amount is BRL 5,000 to BRL 30,000);
- guaranteed debts:
- up to BRL 50,000 regardless of any judicial collection procedure or execution of the guarantee (there was no similar rule for amounts in default before Oct 7, 2014);
- above BRL 50,000 for amounts overdue more than two years, provided that the taxpayer has judicial collection procedures or executes a guarantee (these requirements also applied for any guaranteed debt that was in default before October 7, 2014, regardless of value);
- bankrupt (legal) debtors: any amount as long as the taxpayer has reported its credit in the bankruptcy process (this rule also applies to amounts in default before October 7, 2014); and
- debtors under judicial reorganization (similar to U.S. Chapter 11): any amount that exceeds the amount accepted for payment in the recovery plan (the same rule applies for debts in default before October 7, 2014).
Presumed Tax Credit for Acquisition of Solid Residues
The law also extends through December 31, 2018, the presumed federal excise tax (IPI) credit for the acquisition of solid residues for use in the manufacture of new products.
The presumed tax credit -- created by Law 12,375/2010 and regulated by Decree 7,619/2011 -- is intended to encourage the use of recycled materials. Solid residues are defined by the regulation as "discarded materials, substances, objects or items resulting from human activities in society."
Eligible residues must be acquired by taxpayers directly from recycling cooperatives formed with at least 20 individuals. The presumed tax credit applies to residues from plastic, paper and paper cartons, glass, iron and steel, copper, nickel, aluminum, lead, and zinc.
Like other tax benefits, the presumed tax credit had been set to expire on December 31, 2014.Taxation of Cold Beverages
Law 13,097/2015 introduces a series of changes to the taxation of so-called cold beverages, which include beer, preparations for drinks, and soft drinks.
The IPI rates levied on the import and sale of cold drinks are 6 percent for beer and 4 percent for other products, regardless of possible reductions applicable to individual items.
Imports of eligible items are subject to the Program for Social Integration contribution (P.I.S.) and the Contribution for the Financing of Social Security (COFINS) at rates of 2.32 percent and 10.68 percent, respectively. The same P.I.S. and COFINS rates apply for domestic sales of these products. The IPI, P.I.S., and COFINS rates for sales to retailers and final consumers are subject to reductions in 2015 and 2016.
Law 13,097/2015 also introduces additional obligations for manufacturers of cold beverages, such as new reporting requirements and the installation of meters to monitor production.
Other tax changes introduced by Law 13,097/2015 include:
- a reduction of penalties and interest for capital gains tax in connection with initial public offerings that occurred before December 31, 2008;
- a zero rate of P.I.S. and COFINS on sales of certain tax credits; and
- a tax deduction for certain expenses and losses incurred by financial institutions while under the intervention of regulators.
1. Based on a company's actual (as opposed to presumed) profits.
Article originally published in the January 28, 2015 edition of World Tax Daily (Copyrights Tax Analysts)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.