Companies that provide services abroad have received good news from the Brazilian Federal Revenue Service. A new rule allows taxes paid abroad to be offset in Brazil in the same month they are assessed. Previously, this was only possible once a year, at the end of the fiscal year.
The change in understanding came through Ruling No. 139, published by the General Coordination of Taxation (Cosit), which guides all tax audits. Although there is no change in the tax rate or the amounts of taxes charged, the measure improves the cash flow of companies that carry out this type of transaction, according to experts.
Until the publication of this ruling, the understanding established in Ruling No. 18 of 2021 prevailed. This regulation had stipulated that income tax effectively paid abroad on revenues from services rendered directly, included in taxable income, could be offset against tax calculated in Brazil on the same revenues. However, this was restricted to the end of the year.
Tax expert Luiza Lacerda, a partner at Demarest, gives the example of a hypothetical company providing a service to another foreign company for R$ 100,000. Of the total amount paid, the foreign company would collect, in its own country, the equivalent of R$ 15,000, subject to local taxation. To avoid double taxation, this amount deducted abroad can be used in Brazil to offset the amount due for Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).
According to the previous understanding, this compensation could only be made based on the determination of the actual profit corresponding to the balance sheet of December 31st of the calendar year in which the revenues were obtained. Now, however, the Revenue Service has begun to allow this compensation to occur immediately in the month in which the revenue was recognized and taxed.
Luiza points out that the change is extremely beneficial for companies because the previous understanding created a mismatch between the timing of taxation and compensation. "This SC has greatly improved the situation for service exporters, who were operating under unfair conditions, which reduced their competitiveness," says the lawyer.
She adds that, although the benefit is in cash flow, the impact is significant because the company ended up needing, in practice, to anticipate the withholding of 34% (adding the IRPJ and CSLL rates) from revenue that had already been taxed abroad. "It became a disincentive for exports, which is not beneficial for the Brazilian economy,",
Among the sectors most benefited by the measure, experts highlight technology companies and law firms themselves. Consultation Solution No. 139, for example, was issued by a company that provides satellite television subscription services.
Flávia Holanda Gaeta, founding partner of FH Advogados, also celebrated the "alignment of cash flow" brought about by the Consultation Solution. She highlights, however, that the document maintained the veto on generating a negative balance with the credit of tax paid abroad. Therefore, if the company offset the tax paid abroad over several months, but suffered a significant loss at the end of the year, resulting in a red ink in its annual balance sheet, it will have to wait until the next fiscal year in which it registers a profit.
According to Flávia, it will be up to the company to "carry out extra-accounting controls in order to identify the composition of the negative balance and exclude from it the tax paid abroad, including that used throughout the year in the monthly estimates.".
Flávia explains that if, at the end of the period, there is not enough tax collected to absorb the credit, the portion used to pay the monthly estimates must be reversed. This is because the monthly payment of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) is based on the estimated profit for that period. Thus, there may be differences between the amount paid and the amount actually due after the calculation of the actual profit in the quarterly and annual balance sheets.
According to Georgios Anastassiadis, partner at Gaia Silva Gaede Advogados, even with this veto, the situation is still better for companies. “It’s excellent news because if the company is fully profitable, it will be able to offset this tax from the month of assessment. If there are losses in the final months of the year, the company still had better cash flow in the previous months,” he states.
Anastassiadis regrets the maintenance of the veto on generating a negative balance, he says, because the provision has no legal basis, but was instituted by the Revenue Service itself in Normative Instruction 213 of 2002 (article 14).
Valor contacted the Federal Revenue Service, but they said they would not comment on the matter.
Source: Economic Value