International Tax Newsletter - March 2023

Government Defines Rules on Option for Taxpayers to Apply New Transfer Pricing Rules in 2023 

Regarding Provisional Measure 1,152/2022, which provided new guidelines for the Transfer Pricing legislation in Brazil, the government made available rules on the possibility for taxpayers to apply the new transfer pricing rules established to controlled transactions carried out in the calendar year of 2023.

The MP 1152/2022 brought new transfer pricing rules in line with OECD Guidelines The application of Provisional Measure 1152/2022 is optional for the calendar year 2023 and will become mandatory from 2024.

In this regard, through Normative Instruction 2132/2023, the government regulated the exercise of the faculty of taxpayers to anticipate the effects of Provisional Measure 1152/2022 for the calendar year 2023.

Thus, the irrevocable option process for this option must be carried out in the period from September 1, 2023 to September 30, 2023, by opening a digital process through the Virtual Service Center Portal (e-CAC Portal) and attaching the option term contained in the Annex to Normative Instruction 2132/2023.

Additionally, it is important to point out that the MP has not yet been converted into law, however Brazil’s Transfer Pricing Reform Measure has already passed the Lower House and is solely waiting for its approval on the Senate. 

For more information about the MP's new provisions for Transfer Pricing in Brazil, please consider our February Newsletter and our exceptional Tax Alert on this matter.

Brazilian Federal Revenue Sets Rules for Filing Individual Income Tax Returns 

By means of Normative Instruction 2,134, published in the Official Gazette of the Union on February 28, 2023, the Federal Revenue made available rules for the declaration of base 2022 personal income tax.

The obligation to present the income tax return applies to individuals who, in the 2022 tax year:

•    received taxable income above BRL 28,559.70;
•    received exempt income, non-taxable or taxed exclusively at source, whose value exceeds R$ 40,000.00;
•    earned taxable capital gains on the sale of assets or rights;
•    received taxable capital gains or carried out operations on stock exchanges, futures markets or similar in an amount greater than R$40,000;
•    obtained annual gross income from rural activities in an amount greater than R$ 142,798.50;
•    held, on December 31, 2022, assets or rights, including bare land, whose value exceeded BRL 300,000.00;
•    opted for exemption from capital gains on the sale of residential property pursuant to article 39 of Law 11,196/2005; or
•    became a resident of Brazil at any time in 2022 and maintained that status as of December 31, 2022.

As a new rule for this year's declaration, only individuals who carried out operations on the stock exchange, futures market or similar with a value greater than R$40,000 will be required to declare income tax, whereas previously any investor on the stock exchange was required to declare the tax.

Individuals must declare income tax between March 15, 2023 and May 31, 2023. The amount due must be paid until May 31, 2023, in a single installment or in up to 8 monthly installments, if the tax balance exceeds R$ 100 and the value of each installment is not less than R$ 50.

In the case of late filing, individuals are subject to a fine of 1% of the tax due, per month of delay. The minimum amount of the fine is BRL 165.74, and the maximum amount is 20% of the tax due.

Brazil collects tax on crude oil exports and resumes collection of various fuel contributions 

By means of Provisional Measure 1,163/2023, the Brazilian government established the collection of export tax on crude oil until June 30, 2023. The government also reestablished the collection of contributions on certain fuels.

The MP mentioned also establishes the levy of PIS/PASEP, COFINS, PIS/PASEP-Import, COFINS-Import and Contribution for Intervention in the Economic Domain (CIDE-fuels.

Furthermore, through Provisional Measure 1,157/2023, the new government reduced to 0% the rate of the Contribution to the Social Integration Program (PIS/PASEP) and the Contribution to the Financing of Social Security (COFINS) on various fuels up to 28 February 2023.

The Department of Finance and Planning of the State of São Paulo starts a project to Eliminate the ICMS Information and Calculation Guide 

The Department of Finance and Planning of the State of São Paulo begins the Transition Phase of the project to Eliminate the ICMS Information and Calculation Guide (GIA), another concrete measure to simplify ancillary obligations in line with the Tax Compliance Program, the "Nos Conformes". The Secretariat should announce this month the elimination of the GIA in the rendering of taxpayers' accounts.

The project aims to eliminate the need for the monthly delivery of two similar statements: the GIA and the EFD. In the end, only EFD will remain mandatory in the State of São Paulo. However, the extinction has transitional stages, it will initially be gradual and should benefit taxpayers of the Periodic Regime of Verification.

Federal Supreme Court (STF) votes to overturn 50% fine in tax credit offsets 

The majority of Ministers of the STF voted in favor of the possibility of imposing a fine of 50% on the amounts of refund, reimbursement or tax compensation considered undue by the Federal Revenue Service.

The credit referred to in the discussion is that considered against the Union, for overpayments, for which the taxpayer can offset, administratively, given that the Federal Revenue Service has a period of five years to validate this operation. If this credit is considered not due, the offset is not approved. The debt that had been paid with the credit remains open and a fine of 50% and a late payment of 20% are applied to these amounts.

However, the vote has not yet been concluded, so an official decision has yet to be rendered on the matter.

STF leans towards removing the income tax on donation or inheritance taxed by ITCMD 

The ITCMD is a state tax that, due to its nature, has variable rates which can be up to 8% depending on the state. It is due on donation and inheritance operations.

A recent discussion at the Supreme Court had as its agenda the possible double taxation in the Income Tax (IR) requirement on capital gains resulting from the appreciation of assets transmitted by inheritance or donation, since the States already have the power to charge the ITCMD on donated or inherited goods.

In this sense, the dispute is still open in the STF, however, the National Treasury already accounts for two precedents favorable to taxation, namely RE 1392666 and RE 1269201. that the legislation, observed in Laws nº 7,713/1988 and nº 9,532/1997 did not establish a taxable event for income tax in these cases.

Provisional Measure that Reduces the Withholding Income Tax Rate on Certain Remittances Abroad is Converted into Law 

The National Congress converted Provisional Measure 1,138/2022 into Law, which reduces, for 5 years, the rate of Withholding Income Tax (WHT) levied on remittances abroad to cover expenses of individuals residing in Brazil during trips international up to the limit of BRL 20,000.00 per month.

The new Law 14.537/2023s brings the following reduced rates:

•    6% from January 1, 2023 to December 31, 2024;
•    7% from January 1, 2025 to December 31, 2025;
•    8% from January 1, 2026 to December 31, 2026; It is
•    9% from January 1, 2027 to December 31, 2027.

Brazilian Tax Authorities Change Position on Taxation of Software Licensing for Presumed Profit Regime

The tax authorities, through decision on the “Despacho” nº 36/2023, changed their position regarding the applicable percentage for defining the calculation base of companies that dedicate themselves to software licensing and are taxed under the presumed profit regime. The tax authorities aligned their position with the STF's decision in ADI 5659 and ADI 1945, which characterized software licensing as a service provision.

The Tax Authorities concluded that the granting or assignment of the right to use a standardized or customized computer program must be characterized as providing a service and that the presumed profit percentage of 32% is applied to calculate the CIT calculation basis (IRPJ and CSLL). The tax authorities also clarified that this new interpretation is applicable after the publication of the decision in the Official Gazette.