Brazil: Federal Tax Debts Installment Program – The Adherence Term Is Reopened

With the conversion of provisional measure (MP) No. 627 into Law No. 12,973/2014, the adherence term of the federal installment payment programs is open again until July 31, 2014. The reopened programs are: (I)Federal Tax Recuperation Program (''Refis da Crise''), (II) program for installment debts related to the autarchies and public foundations, as well as the programs established by Law 12,865/2013, namely: (III) tax and CSL debits related to profits earned by related companied or subsidiaries abroad, (IV) PIS and COFINS payable by financial institutions and insurance firms; (V) debts of legal entities subject to litigation relating to the exclusion of the ICMS from the PIS/COFINS calculation basis;

The main benefits of each program, including the modifications to Law No. 12,973/2014, are described below:

(I) "Refis da Crise'' – Law No. 11.941/2009

Section No. 93 of Law No. 12,973 has reopened until 31 July, 2014 the deadline for adherence to the Federal Tax Recuperation Program, named ''Refis da Crise'', established by Law No. 11,491/2009.

Based on the same law, debts overdue until November 30, 2008, constituted or not, registered as collectible or not, within the scope of the Federal Revenue and the Office of Attorney-General of the National Treasury, may be paid using the following options:

In a lump sum: 100% reduction of late payment fine and ex-officio fine, 40% reduction of isolated fine, 45% reduction of default interest and 100% reduction of legal charges.

Within 30 months: 90% reduction of late payment fine and ex-officio fine, 35% reduction of isolated fine, 40% reduction of default interest and 100% reduction of legal charges.

Within 60 months: 80% reduction of late payment fine and ex-officio fine, 30% reduction of isolated fine, 35% reduction of default interest and 100% reduction of legal charges.

Within 120 months: 70% reduction of late payment fine and ex-officio fine, 25% reduction of isolated fine, 30% reduction of default interest and 100% reduction of legal charges

Within 180 months: 60% reduction of late payment fine and ex-officio fine, 20% reduction of isolated fine, 25% reduction of default interest and 100% of legal charges.

Besides that, Section 17, paragraph 7 of Law 12,865, included by Section 93 of Law 12.973, allows the conversion of amounts deposited into definitive payment, as long as there is an application of percentage reductions beforehand. Moreover, any remaining balance is going to be refunded to the taxpayer.

It should be noted that the amount related to the reduction provided in this program will not be computed in the calculation basis of income tax, contribution on profits (''CSLL''), Social Integration Program (''PIS'') or social insurance contributions (''COFINS'').

The outstanding balance of the debt arising from the previous installment programs (REFIS, PAES and PAEX) as well as ordinary installment programs may be paid in up to 180 months, offsetting the amount previously paid.

The reductions in Law No. 11,941/2009 are the following:

Debts arising from REFIS: 40% reduction of late payment fine and ex-officio fine, 40% reduction of isolated fine, 25% reduction of default interest and 100% legal charges.

Debts arising from PAES: 70% reduction of late payment fine and ex-officio fine, 40% reduction of isolated fine, 30% reduction of default interest and 100% legal charges.

Debts arising from PAEX: 80% reduction of late payment fine and ex-officio fine, 40% reduction of isolated fine, 35% reduction of default interest and 100% legal charges.

Debts arising from ordinary programs: 100% reduction of late payment fine and ex-officio fine, 40% reduction of isolated fine, 40% reduction of default interest and 100% legal charges.

(II) Debt Installment Program related to the autarchies and public foundations – Law 12,249/2010

Section 93 of Law No. 12.973/2014 has reopened until July 31, 2014, the adherence term of the Installment Payment Program created by Law No. 12,249/2010, which allows the payment in up to 180 months of the overdue debts as of November 30, 2008 related to the autarchies and public foundations.

The conditions are the same as for the program called ''Refis da Crise'', explained above.

Section 65, paragraph 6 of Law 12,249 provides that the installment must not be less than R$ 100, and the taxpayer shall calculate and pay monthly the amount of the debts subject to installments divided by the number of intended installments.

Furthermore, pursuant to §25 of Section 65, Law 12,249/10, the balance of existing deposits will be automatically converted into income of the respective autarchies and public foundations, after applying reductions on the updated value of the deposit for the payment in a lump sum or installments . In the event that the balance exceeds the value of the debt, the excess will be refunded to the taxpayer, if there is no other tax due or payable credit.

(III) IRPJ/CSLL – Profits Abroad – Law 12,685/2013

Section 93 of the Law No. 12.973/2014 provides that the deadline for payment in installments of debts of income tax / social contribution, in which the tax triggering event has occurred by 31.12.2012, and arising from the application of Article 74 of Provisional Measure 2,158-35 / 2001, which covers taxation, at the end of each year, on profits earned by foreign subsidiaries or related companies abroad.

The adherence to this program may be effected until July 31, 2014. The conditions of this program in summary are:

In a lump sum: 100% reduction of fines (late payment, ex-officio and isolated), interest and charges.

Within 180 months: 80% reduction of late payment fine and ex-officio fine, 80% reduction of isolated fine, 50% reduction of default interest and 100% legal charges. In that case, the taxpayer must pay 20% of the total debt on entry and the rest in monthly installments.

Furthermore, Law 12,973 changed the this installment program allowing the liquidation of amounts related to fines (for late payment, ex officio or isolated), the default interest and up to 30 percent of the principal amount of the tax using credits from tax losses and negative basis of social contribution, own or controlling and related companies on 31.12.2011, domiciled in Brazil, given that they remain in this condition until the date of the installment option.

The use of tax losses and negative basis of social contribution (own or incurred by the controller, subsidiary companies or companies under common, direct and indirect control) will only be admitted until December 31, 2012.

Section 93 of Law 12,973 also added subsection III in § 8 of Article 40, Law 12,865, which assures the application, for the purposes of use of credits from tax losses and negative basis of social contribution, as the concept of controlled being a company in which the controllers, directly or through other subsidiaries, own partnership rights that assure them, permanently, control over the corporate resolutions and the power to elect the majority of directors. This concept is important, since Law 12,973 extended the use of tax losses to the controllers.

It should be noted that the amount related to the reduction provided in this program will not be computed in the calculation basis of income tax, contribution on profits (''CSLL''), Social Integration Program (''PIS'') or social insurance contribution (''COFINS'').

It is worth mentioning that the rule laid down in section 74 of the Provisional Measure (MP) 2158-35, 2001 - which provides the levy of income tax (IR) and Contribution on Profits (CSL) on the results of subsidiary companies or affiliates abroad, on the balance sheet date which they were established, apply to subsidiaries located in countries considered "tax havens", but not affiliates in countries without tax haven status, as judged in ADI No. 2,588 by the Supreme Court.

Therefore, even though the program offers attractive benefits, the adherence should be subject to analysis of each case, since the Supreme Court has not defined understanding regarding the application of the rule to the non-tax haven subsidiaries and related companies located in tax havens.

(IV) PIS/COFINS - financial institutions and insurance companies - Law 12,685/2013

In addition to the changes mentioned above, Law 12.973/2014 modified the installment program provided for in Article 39 of Law 12,865, destined exclusively for payment of PIS and COFINS debts overdue up to 31/12/2012, and payable by financial institutions and insurance companies.

The adherence to this installment program was extended until 31/07/2014 and does not depend on the presentation of guarantees. The conditions for settlement of these debts are:

In a lump sum: 100% reduction of fines (late payment, ex-officio and isolated), interest and charges.

Within 60 months: 80% reduction of late payment fine and ex-officio fine, 80% reduction of isolated fine, 40% reduction of default interest and 100% legal charges. In that case, the taxpayer must pay 20% of the total debt on entry and the rest in monthly installments.

Section 39 of Law No 12.865/2013 provides that debts of PIS/COFINS owed by financial institutions and insurance companies may be included in this program, whether constituted or not, or registered as collectible or not.

In addition, contrary to what occurs in Refis da Crise and installment program debts related to the autarchies and public foundations, Article 39 establishes that existing deposits related to debts to be paid in installments will automatically become definitive payment, applying the reductions only for the remaining balance of the debts owed.

To enjoy the benefits, the taxpayer must prove the express and irrevocable renouncement of lawsuits which have as subject the PIS/COFINS now benefited. However, the renouncement may be partial, if the debt is capable of being distinguished from the other debts disputed in judicial or administrative settings.

It important to note that the amount related to the reduction provided in this program will not be computed in the calculation basis of income tax, contribution on profits (''CSLL''), Social Integration Program (''PIS'') or social insurance contribution (''COFINS'').

Although the Supreme Court has determined that PIS/COFINS is levied only on revenue, the discussion about the application of this rule for financial institutions and insurance companies remains open, and will be judged in Extraordinary Appeals 609 096 and 400 479.

(V) PIS/COFINS- ICMS inclusion in PIS/COFINS calculation basis – Law 12,685/2013

Paragraph 1, section 39, Law 12,865/13, provides that corporations may pay, in similar conditions to the program for the financial institutions and insurance companies, debts subject to litigation relating to the exclusion of ICMS from the PIS/COFINS calculation basis;

It is worth mentioning that, although the Superior Court of Justice has pacified the understanding in the sense that the amount of ICMS should be included in the calculation basis of PIS/COFINS (Precedents 68 and 94), the issue is the subject of Declaratory Action of Constitutionality No. 18, pending hearing in the Supreme Court.

The deadline for joining the program was also reopened until 31/07/2014.

Visit us at Tauil & Chequer

Founded in 2001, Tauil & Chequer Advogados is a full service law firm with approximately 90 lawyers and offices in Rio de Janeiro, São Paulo and Vitória. T&C represents local and international businesses on their domestic and cross-border activities and offers clients the full range of legal services including: corporate and M&A; debt and equity capital markets; banking and finance; employment and benefits; environmental; intellectual property; litigation and dispute resolution; restructuring, bankruptcy and insolvency; tax; and real estate. The firm has a particularly strong and longstanding presence in the energy, oil and gas and infrastructure industries as well as with pension and investment funds. In December 2009, T&C entered into an agreement to operate in association with Mayer Brown LLP and become "Tauil & Chequer Advogados in association with Mayer Brown LLP."

© Copyright 2014. Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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