International Tax Newsletter - Junho 2024

Provisional Measure prohibiting the use of PIS and Cofins is cancelled

The federal government published 4th of June the Provisional Measure #1,227/2024, which prohibited the use of PIS/Cofins credits to pay debts owed by other companies federal taxes, including social security taxes, and prohibited the reimbursement, in cash, of credit balance arising from presumed PIS/Cofins credits. The government informed that both measures sought to offset the tax waiver generated by the payroll tax relief.

The Provisional Measure also determined that companies holding tax incentives Federal authorities would have to provide information to the Federal Revenue of Brazil (RFB), with emphasis on the amount of tax waiver involved, under penalty of fine, in case of non-delivery, delivery in delay or inaccuracy of the value informed. Furthermore, the measure promotes changes to the Tax on Rural Territorial Property (ITR).

However, on the 11th of June the challenge to the part of Provisional Measure #1,227/2024 was cancelled, since it entered in force without meeting the legal term of 90 days.

It is important to point out that only the abovementioned topics of the referred Provisional Measure were cancelled by the Senate.

Brazilian tax authority allows the use of Israel treaty in operation with Belgium

The Brazilian IRS allowed the use of the Double Tax Treaty between Brazil and Israel to reduce the tax burden charged in a corporate transaction carried out between a Brazilian company and another in Belgium. 

The Tax Authorities understood that it was possible for Brazilian taxpayers to adopt the “most favored nation clause” and apply a lower rate (provided for in another bilateral agreement) to pay less Income Tax Withheld at Source (IRRF). 

This allowed the company to use the rate of 15% provided for in the treaty with Israel, instead of the progressive rate that goes from 15% to 22.5% on capital gains, as stated in current Brazilian Tax Law. The understanding was published on the Formal Consultation #147 (SC COSIT #147/2024), from the Brazilian General Coordination of Taxation (Cosit), published at the end of May.

Brazilian Superior Court of Justice denies the possibility of an importer asking the tax authorities for the return of overpaid amount

The Superior Court of Justice (STJ) denied the request for refund of overpaid PIS/Cofins-Import amounts made by the importer on behalf of a third party. 

As indicated by the judges, the Federal Revenue considers that in the form of import on behalf and order, although the role of the importing company may range from the execution of the import order to the intermediation of negotiations abroad, the importer is in fact the acquirer. The importer on behalf and order is considered an agent of the acquirer. 

For the Tax Authorities, even if the importer on behalf of the foreign supplier makes payments to the foreign supplier, it is not an operation on its own behalf, but rather between the foreign exporter and the acquirer, as it is from there that the financial resources originate. 

This decision was made based on the legislation that, according to the main judge, clarifies that it is the acquirer who is entitled to PIS-Import and Cofins-Import credit in these cases.

New calculation and distribution systems are already under development for new tax reform taxes 

Public bodies are already developing new systems for calculating, collecting and distributing the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS). According to the Undersecretary of the Federal Revenue, Juliano Neves, the government has been working to reduce bureaucracy in processes through technology, simplifying taxpayers' lives. The data collected must be stored in a cloud and organizations will receive guidance on how to use online tools to calculate taxes.

Neves also adds that it is possible for operations to be carried out in real time, according to current technology, reinforcing that the system needs to be completed within a year so that departments, both financial and tax, can adapt. According to the tax reform, among the main points of change are simplification by unifying tax collections, in addition to establishing the collection of these taxes at the destination of goods or services.

It is worth remembering that, at the end of 2023, the National Congress approved a dual Value Added Tax (VAT) taxation regime, in which the IBS will replace taxes referring to subnational entities and the CBS in place of taxes collected by the Union. It is expected that the two projects, currently in progress, will be approved by the end of the first half of July by the Chamber of Deputies.

Another point that is also awaited is the functioning of the Steering Committee to distribute the IBS, which brought about several debates during the processing of the proposed amendment to the constitution.

Federal Revenue Service of Brazil understands that gains resulting from cryptoactives must be taxed as income from financial investment

On June 16th, it was published on the General Coordination of Taxation Consultation Solution (Cosit) #86 an understanding from the Federal Revenue Service of Brazil (RFB) that defines that gains resulting from the temporary transfer of cryptoassets must be taxed as a financial investment. As a way of guiding the country's tax authorities, the Solution clarifies that these cryptoassets must be taxed as income from fixed income investments and not as rent, as a taxpayer intended.

In its view, the RFB explains that cryptoactives represent digital assets, or even tokens, therefore, they are intangible assets, as provided for in article 3 of Law No. 14,478/22 and, in this case, they are movable assets. The Tax Authorities also stated that cryptoassets are encrypted assets, therefore, they are not a computer program and, because of this, their transfer does not constitute software licensing remunerated by royalties.

Another point raised by the Tax Authorities is that as the transferee does not operate these cryptoassets on the market in favor of the transferor, he does not manage investments for him.

Based on this explanation, this type of activity could not be characterized as asset management, as well as brokerage or distribution of securities and also bank deposits, either because it was not signed with a financial institution, or because its purpose is not importance in money.