On March 18, 2022, Law 14,148 of May 3, 2021 was republished, to introduce certain provisions that had been vetoed in the original publication.
This law introduced the Emergency Program for Recovery of the Events Sector (“Perse”), which originally stipulated two mechanisms for protecting the events sector:
– The possibility of negotiating tax obligations with discounts of up to 70% of the total outstanding amount, for payment in up to 145 months;
– Creation of the Program for Guarantees for Critical Sectors, to be managed by the Fund for Guarantee of Investments (PGSC-GFI).
The reversal of the vetos by the Congress and publication of the originally vetoed provisions has brought new benefits for companies in the events sector, namely:
– Reduction of Corporate Income Tax and Turnover Taxes (PIS/COFINS) rates to zero for 60 months for eligible companies;
– Indemnification for payroll expenses with an amount to be stipulated by regulations, for companies that suffered a reduction in revenues exceeding 50% between 2019 and 2020;
– A special credit program for companies that are eligible for both Perse and the National Program for Support of Small and Medium Enterprises (“Pronampe”).
This special credit program is exclusive for companies eligible for the Pronampe, and indemnification for payroll expenses is exclusive for companies that suffered reduction in revenues, subject to further regulations.
The Corporate Income Tax and PIS/COFINS zero rate benefit for 60 months, however, is only subject to the eligibility for the Perse program. Considering that this law entered into force on the date of its publication (March 18), the rate reduction is already in effect and applicable, at least in theory, for taxable events occurring in March 2022. In prior situations where a change in legislation was introduced in the middle of a taxable period, the Brazilian Federal Revenue issued regulations to address the timing of these changes. It is possible that regulations will be published to address this situation.
Law 14,148 has employed broad language to define the companies eligible for the Perse, being those “belonging to the events sector, including non-profit organizations, that develop said activities directly or indirectly:
I – organization of congresses, fairs, sports, social, promotional or cultural events, trade fairs, shows, parties, festivals, symposiums, or events in general, event venues, social and child buffets, clubhouses or concert halls;
II – hospitality in general;
III – management of movie theaters; and
IV – supply of touristic services, in accordance with article 21 of Law 12,771, of September 17, 2008.”
This provision also stipulates that the Minister of Economy is responsible for publishing an act providing the CNAE business activity codes eligible for the Perse. This list was brought by Ordinance ME 7,163, of June 21, 2021, which lists almost 90 codes, some which relatively loosely related to cultural events. The Ordinance was published at a time when the zero-tax rate provision was still under the presidential veto, which may induce government authorities to change this list or to supplement this with new activities. Said changes may be necessary because the Ordinance restricts the eligibility to Perse only to companies that had carried out benefited activities before this law was published, or to companies with good standing with Cadastrur, specifically for companies in the tourism sector. This restrictive language concerning the reach of these tax benefits, if not amended, may cause relevant distortions amongst companies currently operating in the economic sectors originally targeted by Perse, and may give rise to litigation.
Law 14,148 stipulated the zero-tax rate for the eligible companies, and not for the relevant activities. Accordingly, all earnings and profits from a company that develops an eligible activity would in theory benefit from said reduction. A preponderance test should be relevant to evaluate the extent of this benefit. It is also necessary to evaluate the possibility of maintaining PIS/COFINS credits from acquisition of goods and services subject to tax, and the recovery of credits in case the company has no PIS/COFINS or income taxes to pay in the next five years.
Considering that the benefits introduced now were vetoed based on constitutional grounds, we cannot rule out the possibility of these provisions being challenged in the Courts. Notwithstanding that, for now said provisions are in force and the zero rates are currently applicable to all eligible companies.