Provisional Measure Limiting Tax Compensation – Introduction
On Tuesday, April 4th, 2024, the Brazilian Federal Government published Provisional Measure (PM) No. 1,227/2024, introducing significant changes to tax regulations.
As a PM, this measure has the immediate force of law but must be approved by Congress within 120 days to remain effective.
Key Changes Introduced by PM No. 1,227/2024
Limitation on Use of Presumed PIS/Cofins Credits
The measure revokes previous provisions that allowed taxpayers to recover presumed PIS/Cofins credits in cash.
Under the new legislation, companies can only offset these credits against other federal taxes.
This change limits the flexibility businesses previously had in managing their tax liabilities.
Prohibition on Offsetting Non-Cumulative PIS/Cofins Credits
One of the most controversial aspects of the PM is the prohibition on offsetting PIS/Cofins credits, calculated under the non-cumulative system, with other federal taxes.
Previously, taxpayers could offset these credits with taxes such as Corporate Income Tax (IRPJ) or Social Contribution on Net Profit (CSLL).
Now, PIS/Cofins credits can only be offset against debts of the same contributions, although requesting reimbursement in cash is still possible in certain legislatively defined cases.
Mandatory Declaration of Tax Benefits
The PM imposes a new obligation on taxpayers to declare their tax benefits.
Taxpayers must inform the Federal Revenue Service about the incentives, exemptions, benefits, or tax immunities they enjoy, as well as the corresponding tax credit value.
Failure to report or late reporting of this information can result in fines of up to 30% of the value of the tax benefits.
Government’s Rationale
The Government has stated that these measures aim to balance public accounts, particularly in light of payroll tax exemptions.
To provide further clarity, a Normative Instruction will be issued, detailing the changes, especially those concerning the declaration of tax benefits.
Implications for Taxpayers
- Restricted Credit Offsets: Taxpayers need to adjust their tax planning strategies due to the limitations on offsetting PIS/Cofins credits.
- Increased Reporting Requirements: The obligation to declare tax benefits introduces new compliance requirements, with significant penalties for non-compliance.
- Financial Impact: The new regulations may affect cash flow management for businesses relying on tax credit offsets.
Provisional Measuring Limiting Compensation – Conclusion
We would suggest that any taxpayers who might be affected by these changes should seek advice in relation to them.
Final thoughts
If you have any questions regarding this Provisional Measure Limiting Compensation, or other tax matters in Brazil, please get in touch.