Brazil: 24.09.2013 - Regulation Of Transition Tax Regime - IN RFB NO. 1,397/1

On September 17, 2013, the Brazilian Federal Revenue (Receita Federal do Brasil - "RFB") issued the Normative Instruction (Instrução Normativa - "IN") no. 1,397/13, which provides for the Transition Tax Regime (Regime Tributário de Transição - "RTT") established by Articles 15 and following of Law no. 11,941/09. It is worth mentioning that such regime was instituted in order to neutralize, for taxation purposes, the effects of the profound changes in accounting methods and criteria introduced by Laws 11,638/07 and 11,941/09.

In general, the IN no. 1,397/13 aims to regulate many controversial issues involving the RTT, among which stand out the institution of Tax Bookkeeping (Escrituração Contábil Fiscal – "ECF"), statements and concepts of the Taxable Income system (Lucro Real), debentures premiums, subsidies to investments and donations, evaluation of investments by its net worth, presumed profit (Lucro Presumido) and Contributions to the Social Security Funding ("COFINS") and to the Employee Profit Sharing Program ("PIS"), plus the rules related to dividends and interest on net equity (Juros sobre o Capital Próprio – "JCP"), which were analyzed by us in a specific Memorandum dated 09/19/20131.


At first, we emphasize that this IN establishes the Tax Bookkeping from the calendar year 2014, which is an accessory obligation contained in the entry of a new accounting, according to the accounting principles and rules that were effective on December 31, 2007. That is, starting from the calendar year 2014, corporations will have two accounting statements, one based on current accounting standards for corporate and accounting purposes, and another based on the accounting standards in force on December 31, 2007, for tax purposes.

We believe this new accessory obligation may be challenged in the Judiciary, as it offends the constitutional principle of proportionality for being, strictly speaking, unnecessary, given that the Transitional Tax Accounting Control (Controle Fiscal Contábil de Transição - "FCONT") fully accomplishes the duty of promoting the adjustments arising from the RTT, especially since we are dealing with transitional adjustments that soon will be replaced by a new legislation on the taxation of income and profits.

It is also important to stress that the taxpayer, in accordance with article 10 of the IN, must elaborate balance sheet, income statement and the accrued profit and loss statement based on the accounting standards in force on December 31, 2007.


Regarding the debenture premiums, some procedures must be observed to avoid the including of this benefit in the calculation basis of Corporate Income Tax and Contribution on the Net Income ("CSLL"), such as: (i) the recognition of the debenture premium in the results account by the accrual method and in accordance with the provisions issued by the Brazilian Securities and Exchange Comission (Comissão de Valores Mobiliários - "CVM"); and (ii) the exclusion, from the Taxable Income Control Register (Livro de Apuração do Lucro Real – "LALUR"), of the amount of the net income resulting from the premium and its maintenance on specific profit reserve.

However, the premiums will be taxed if given different destination from the explained above, including in the events of: (i) capitalization of its value and subsequent capital reduction with reimbursement to shareholders, (ii) capital reduction with reimbursement to members within 5 years before the issue of debenture premiums and subsequent capitalization of its value; and (iii) integration of debenture premiums into the calculation of the mandatory dividends. In the first two cases, the tax incidence will be the value refunded, limited to the amount of deductions arising from debenture premiums.

The subsidies to investments and donations are also not taxed, since they observe the same procedures applicable to the debenture premiums and the retained net profit in the corresponding reserve, to the extent of the net income. If the company assesses, in the period, less accounting loss or net income than the portion of revenue from subsidies to investments and donations booked in income, the company cannot constitute the reserve, which, therefore, shall be constituted in subsequent years.

It should be noted that IN has not brought innovations in relation to fiscal neutrality of the debentures premiums and subsidies to investment and donations, referred to Articles 18 and 19 of Law No. 11,941/09.


For RTT purposes, under article 15 of mentioned IN, the relevant investments (in associated and controlled companies) of the legal entity will be valued at equity value, through the equity accounting method (Método de Equivalência Patrimonial – "MEP"), pursuant to article 248 of Law no. 6,404/76 in its wording in force on December 31, 2007.

Thus, the definition of "relevant investment", "associated" and "controlled company" must be extracted, respectively, from Articles 247, 243, § 1, and 243, § 2, of Law no. 6,404/76 in effect on December 31, 2007. In this sense, for RTT purposes, will be considered as associated a company that participates with 10% (ten percent) or more of the corporate capital of another, without controlling it, disregarding the "significant influence" currently in effect.

Under Article 16 and 17 of IN, the taxpayer, in each balance sheet, should evaluate the investment on associated and controlled companies, with information provided by them, through MEP, according to the accounting methods and criteria in force on December 31, 2007.

In the case of investment on company domiciled abroad or taxed on presumed or arbitrated profit, the IN determines that the investing company carries out the necessary adjustments in the balance sheet of the associated or controlled company in order to eliminate the relevant differences arising from the different accounting criteria.

It is possible to note, regarding associated and controlled companies abroad, an inconsistency with the provisions of IN no. 213/02, which regulates the taxation of profits, income and capital gains earned abroad by corporations domiciled in Brazil. Indeed, Article 6 states that the financial statements of subsidiaries, branches, controlled or associated companies abroad will be prepared according to the standards of commercial legislation of the country of domicile. Only in the absence of such rules the Brazilian law would be applied. Still, the IN no. 213/02 provides that, after translated and converted into Brazilian Reais, the accounts should be classified according to the rules of Brazilian commercial law and used in order to assess the taxable income and the basis of social contribution.

Hence, there are two rules issued by RFB which deliver conflicting guidelines about the same situation: on one hand, IN no. 1,397/13 provides that the value of the equity of the investee is determined according to the rules in force on December 31, 2007. On the other hand, IN 213/02 provides that the investees' financial statements are prepared in accordance with standards of commercial legislation of the country of domicile.

Notwithstanding, we believe that, since the IN 213/02 specially provides for the taxation of profits, income and capital gains earned abroad by corporations domiciled in Brazil, it should prevail over the provisions of IN 1,397/13.


As for the presumed profit, IN came only reiterate the applicability of the RTT for companies opting for this system, which was already provided for in Article 20 of Law no. 11,941/09.


The IN also provides, for PIS and COFINS, that legal entities shall calculate their tax bases in accordance with the rules of each contribution and the use of methods and criteria in force at December 31, 2007, including for purposes of determining the credits on non-cumulative systematic.

In this sense, IN determines adjustments in the calculation bases of these contributions, which consist of adding or excluding revenue which taxation was, respectively, deferred from prior periods or later periods, resulting from the difference between accounting methods and criteria in relation to those applicable to tax laws.


Finally, due to the fact that normative instructions have merely interpretative character of legislation already in force (in this case, the law regarding RTT - Law no. 11,941/09 - although this is not the case of IN no. 1,379/13 which, in fact, usurped the role of the legislator), is possible that the Tax Authorities apply all provisions of IN from the enactment of Law 11.941/09. This understanding (though illegal), can be applied immediately, since the IN no. 1,397/13 took effect on the date of its publication.


1 Available in our website: .

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions