Brazil: Supreme Court Suspends Cases About One-Third Vacation Bonus; Check Out The Tax Law Newsletter

Supreme Court suspends cases regarding the legal nature of one-third vacation bonus

Justice André Mendonça, of the Supreme Court (STF), determined the suspension of all cases related to the incidence of social security contribution on the constitutional one-third vacation bonus (Theme 985 of General Repercussion). The STF has already declared the constitutionality of the taxation, but the taxpayers filed multiple motions for clarification regarding the possible modulation of effects (the possibility of limiting the effects of a judicial decision over time).

Justice Marco Aurélio, who is now retired, was the rapporteur of the case, and his understanding was followed by all Justices, except Edson Fachin. According to Marco Aurélio, the constitutional one-third vacation bonus is a regular portion or the employee remuneration, received as a salary supplement and, thus, is not an indemnity. Therefore, following previous STF decisions related to other forms of payment made by employers, employees' additional one-third vacation pay should be taxed.

The trial for modulation of effects began in March 2021 but was interrupted in April of the same year due to a request for a separate vote made by Justice Luiz Fux and has remained unresolved since then.

Supreme Court upholds limitation of tax loss offset in case of company dissolution

The 2nd Chamber of the Supreme Court (STF) validated the limitation to 30% of the profits of any taxable year for the offset of accumulated tax losses from previous fiscal years when calculating the Social Contribution on Net Profits (CSLL) and Corporate Income Tax (IRPJ) in the event of a company's dissolution, even through a merger. The decision was rendered in Extraordinary Appeal 1357308.

The cap of 30% of the profits represents an annual limit on the losses that can be offset when calculating federal taxes, preventing the taxpayer from deducting the full amount when calculating the Net Profit. Taxpayers argue that the STF did not address situations where the legal entity is dissolved during the judgment of Extraordinary Appeal 591340 (Theme 117 of general repercussion) in 2019.

While the appeal does not have binding effects, this decision is important in defining the specific case and reflects the opinion of five of the STF Justices.

Non-recoverable Tax on Industrialized Products (IPI) must be included in PIS/Cofins credit calculation basis

The Federal Court of São Paulo granted the request of a supermarket chain to include the non-recoverable Tax on Industrialized Products (IPI) in the calculation base of non-cumulative PIS/Cofins credits related to the acquisition of products intended for resale.

Non-recoverable IPI in commerce refers to the value that cannot be offset due to the supplier not being an IPI taxpayer. In the industry, the amount paid at one stage must be deducted from what was charged in the previous stage, following the logic of non-cumulativity. However, since the resale activity does not involve a manufacturing process, such deduction is not possible.

The Brazilian Federal Revenue's (RFB) understanding was that the non-recoverable IPI due in sales by suppliers is part of the acquisition value of goods intended for resale for the calculation of PIS/Cofins credits.

However, in December 2022, the RFB published Normative Instruction 2,121/2022, which prohibited the inclusion of IPI incurred in the sale of goods in the calculation of PIS/Cofins tax credits. This regulation was challenged by the taxpayer in the lawsuit.

According to the judge of the case, not all costs can be deducted, and generally, recoverable taxes are not considered part of the acquisition cost and, therefore, cannot be treated as inputs from an accounting or tax perspective.

However, the decision considered that the non-recoverable IPI is different and can be credited, as it is part of the acquisition value of the goods for the calculation of PIS/Cofins credits following the non-cumulative system.

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