State Tax Breaks Are Not Taxable By CIT, Administrative Court Decides

Author:Mr Tiago Tomasczeski, Philipp Klose-Morero and Pedro Paschoal
Profession:Rödl & Partner

Based on the thesis that tax breaks granted by federated states are investment aids, a company in the state of Rio Grande do Norte received a unanimous decision in its favor in the Superior Council of the Administrative Court of Tax Appeals (CARF) in what concerns the tax base of Corporate Income Tax (CIT).

As a beneficiary of State VAT tax breaks granted by local authorities under strict control of its investments in that state, the company hired loans whose revenue it did not include in the tax base of CIT, understanding they were reflexes of an investment aid. Investment aids, according to CIT regulation, are not taxable income.

Questioned by federal tax authorities on the argument that the revenue arising from tax breaks would only be excluded from CIT tax base if it was applied directly to fixed assets of financial investments - what, according to the federal tax authorities, did not happen, since the loans and special taxation...

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