At the end of May 2018, the Federal Government enacted important legislation increasing the tax burden for certain economic sectors, namely Federal Law No. 13,670/18 and Federal Decree No. 9,393/18, both published in the Official Gazette on 30rd May 2018.
The most relevant changes are:
LIMITATION OF EFFECTIVENESS AND CHANGE OF RULES REGARDING PAYROLL EXEMPTION
Federal Law No. 12,546/11 was modified by Federal Law No. 13,670/18 to determine that, as from 1st September 2018, the collection of social contribution on gross revenue (“CPRB”), formerly permitted for an indefinite period, will be effective up to and including 31st December 2020 only for companies conducting the following activities:
- Call center, communications, IT, telecommunication and information technology, integrated circuit projects;
- Shoe making, clothing, leather and textile industry;
- Civil engineering and infrastructure works;
- Manufacturing of vehicles and bodywork, machinery and equipment;
- Different types of meat and animal protein;
- Underground rail transportation of passengers, cargo and passenger transportation by road.
In connection therewith, all other companies previously enjoying the benefit will be excluded from the payroll exemption as from 1st September 2018. For companies still permitted to collect social security contribution over their gross revenue, the rates of such contribution will vary from 1% to 2.5%. However, as from 2021, pursuant to the new Law, all companies will have to collect social contribution on payroll.
The good news is that Law No. 8,212/91 was amended to determine that the social contribution overpaid due to the inability of choosing to collect such contribution over gross revenue will be considered as an undue payment and can be refunded or offset against social security contribution debts of the same taxpayer.
INCREASE OF RATES FOR COFINS-IMPORTATION LEVIED ON THE IMPORTATION OF CERTAIN GOODS
Federal Law No. 13,760/18 increased to 10.65%, between 1st September 2018 and 31st December 2020, the rates of COFINS-importation levied on the importation of several goods, including:
- Clothing and shoes;
- Textiles and cloth;
- Dishwasher parts for domestic use, washing machines, ironing machines and sewing machines;
- Forklifts and excavators;
- Cutters and winding machines for photographic and typographic procedures;
- Printers;
- Plastic and rubber machines or machines or equipment to shape them;
- Parts or components used by the automotive industry, such as engines, cylinders, carburetors, escape valve, and so on;
- Fuel pumps and lubricant oils;
- Engines for aircraft, boats, buses, trucks and farm tractors; and
- Agricultural machinery and equipment, such as sowers, fertilizer and seed distributors.
CHANGES TO RULES APPLCABLE TO THE OFFSETTING OF DEBTS RELATED TO FEDERAL TAXES WHITH CREDITS HELD BY TAXPAYERS
Federal Law No. 13,670/18 modified Federal Law 9,430/96 to determine that the following debts will not be subject to electronic set-off applications:
- Debts which have already been subject to electronic offset requests not recognized by the Federal Tax Authority, even if the application is pending final administrative decision in this regard;
- Amounts included in reimbursement or refund applications already denied by the Federal Tax Authority, even if the application is pending final administrative decision in this regard;
- Credit subject to reimbursement or refund applications as well as the credit reported in electronic set-off applications the recognition of liquidity and certainty of which is subject to tax inspection;
- Quota values of family salary and maternity leave; and
- Debts of monthly collection by estimate of Corporate Income Tax and Social Contribution on Net Profit quarterly verified;
INCREASING “REINTEGRA” BURDEN – VIOLATION OF THE NINETY-DAY DEADLINE BY THE FEDERAL GOVERNMENT
On 30th May 2018 Federal Decree No. 9,393/18 was published to reduce, as from 1st June 2018, the Reintegra credit from 2% to 0.1% on exportation revenues, meaningfully increasing the tax burden on exportation activities.
Introduced by Law No. 12,546/11, the “Special Regime of Reintegration of Tax Values for Exporting Companies” – REINTEGRA is a tax benefit granted to exporting companies, since it refunds, even partially, tax costs incurred in the production chain of products for exportation purposes. Such benefit aims trade surplus, which is highly relevant for the economic development of Brazil.
The products benefited are listed in the Annex of Federal Decree No. 8,415/2015, such as milk and its derivatives, equipment, automotive vehicles and their parts and components. It is worth mentioning that such tax benefit is only applicable to products manufactured in Brazil containing a percentage of nationalization varying from 40% to 65%, depending on its classification in the Tax on Industrialized Products List (“TIPI”).
Even if the Superior Courts have precedents determining that a Federal norm needs ninety days (90) to start become effective, this is the third time that the Federal Government violates such rule.
Therefore, only taxpayers who file a judicial claim will be able to postpone the collection of the difference between the former percentage of credit and the current percentage introduced by the new rule to 1st September 2018 or to recover the amounts unduly paid within this period.
The Tax Team at Montgomery & Associados remains at your disposal for any further clarifications on the above.