Social security contributions have been one of the heaviest burdens on company operations in Brazil for decades. Aiming at strategic areas of national economy, a social security regime known as "tax break on payroll" was created in 2012 – it proposes Employer's Social Security Contribution (INSS-Employer) at a 20% rate on payroll is totally or partially substituted by the Social Security Contribution on Gross Revenue (CPRB).
This substitute contribution presents 1% or 2% rates (varying according to the business/economic area of the company) on a tax base comprising gross revenue minus cancelled sales and unconditional discounts granted. With the inclusion of many economic areas to the break throughout the years and a significant cost reduction for beneficiary taxpayers, companies grew used to this tax break.
However, on the last week of February 2015, a Provisional Measure (executive act enforceable as law) that raises CPRB rates was published by the Federal Government. According to the intentions of the Executive Power, those taxpayers which were subject to the 2% rate must pay a 4,5% percentage of gross revenue from June 1, 2015 onwards – likewise, taxpayers that were subject to the 1% rate must collect CPRB by applying a 2,5% rate to the tax base.
The Provisional Measure text also makes collecting CPRB instead of INSS-Employee optional for the economic areas comprised by the tax break, where this option is made on the first payment of the contribution in the year, and it is irreversible for the whole year. Exceptionally in 2015, companies might take the gross revenue from June as a base to opt for the tax break on payroll, and this choice would be irreversible for the rest of the year.
Nevertheless, the head of Federal Senate refused the Provisional Measure text. This refusal was based on the argument of inadequacy of that kind of normative act for promoting fiscal alterations of such an impact in the economic life of the country, whereas it would be a matter under the competence of the Legislative Power. In immediate response, President Dilma Rousseff presented the Congress a bill under constitutional urgency regime with basically the same content of the rejected Provisional Measure, which must be voted within 90 days at the latest.
Taxpayers must keep doubled attention to the decisions to be taken in this conflict between Executive and Legislative powers, since that political crisis may have grave effects on company tax obligations.
Seizing opportunities - Newsletter Brazil, Issue: March 2015
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