Brazilian tax authorities published Normative Ruling 1,911/2019, regulating all tax legislation related to PIS and COFINS, including (i) calculation of the tax owed in the domestic market; (ii) non-cumulative credits; (iii) PIS/COFINS-Import; (iv) special methods for specific industries, such as financial institutions, insurers and reinsurers and agribusiness; (v) the concentrated taxation method; and (vi) special tax benefits, such as DRAWBACK, REPES, RECAP, REIDI and RETAERO.
For the calculation of PIS and COFINS non-cumulative credits, Normative Ruling 1,911/2019 adopted the concept of inputs defined by the Superior Court of Judgment, based on the criteria of the essentiality and relevance of the expenditures in the context of the company's activity.
Regarding the exclusion of State-VAT (ICMS) from PIS and COFINS bases, allowed by the Brazilian Supreme Court, Normative Ruling 1,911/2019 has reiterated the position of Normative Opinion COSIT Nº 05/2018. In this sense, according to the tax authorities, the amount to be deducted from the PIS and COFINS bases is the ICMS effectively paid by the seller (tax owed net of the non-cumulative credits), and not the amount debited in the fiscal invoice. However, this restrictive opinion issued by the Brazilian tax authorities does not reflect the position of the Brazilian Supreme Court and the taxpayers will certainly challenge it.
Courts Held that Tax Credits Recovered Must Be Included in the Corporate Taxes Bases Only upon Their Offset
With the recovery of tax credits related to the exclusion of State-VAT (ICMS) from PIS and COFINS bases, Brazilian tax authorities have already taken the position that the credits recovered are subject to the corporate taxes (IRPJ and CSLL) upon the final court decision. However, because such decisions usually do not set a fixed amount to be recovered, the tax authorities accept the taxation when the credits are effectively calculated and booked in the companies' financial statements.
However, some judicial decisions held that the credits' legal or economic availability for the taxpayer occurs only upon the actual recovery (offset) of the credits, which means that such credits should be taxed only at that time. Nevertheless, this subject remains controversial and has not yet been settled in the Brazilian Superior Courts.
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