On Wednesday (December 20), the Senate approved the Provisional Rule (MP) 1185, which determines the taxation of government subsidies by Income Taxes (IRPJ/CSLL) and Social Contribution on Revenue (PIS/COFINS), providing, in return, a tax credit.
Now, the MP’s text will move on to presidential sanction, coming into force as Law in January 2024. The primary target of this measure is the ICMS tax benefits, which have recently been the subject of various legal discussions that exempted them from taxation by the Federal Government.
Under this new mechanism outlined in the MP, the subsidy amount will be included in the calculation basis of IRPJ (25%), CSLL (9%), PIS (1.65%), and Cofins (7.6%), and will be taxed accordingly.
If the tax benefit is intended to establish or expand the subsidized economic venture, the taxpayer may prequalify with the Federal Revenue and calculate an IRPJ (25%) tax credit, eligible for cash reimbursement or offset against other federal taxes through a declaration of compensation.
This measure completely changes the federal tax treatment of these benefits and means an actual increase in tax burden for many taxpayers, especially because it revokes the provisions of Law 12,973/2014, which allowed exemption from taxation through the establishment of profit reserves and equated all benefits to investment subsidies.
We understand that is important to evaluate each taxpayer’s individual situation and prompt action should be taken to challenge the illegitimate impacts of this measure, especially regarding:
- That State benefits in the form of presumed credit cannot be subject to Federal taxation (any tax) due to violations of the federal pact and reciprocal immunity, because this taxation would mean undue encroachment by the Federal Government on the States’ assets.
- For other benefits such as exemption, calculation basis reduction, and deferral, despite the recent STJ decision in Theme 1182 stating that these incentives can only be deducted from the IRPJ and CSLL calculation basis if the federal law’s rules are followed (establishment in profit reserves and non-distribution to shareholders), it’s also arguable that their taxation violates the constitutional concept of income for IRPJ/CSLL and revenue for PIS/COFINS, thus not subject to Federal taxation.
- For all benefits, there’s an argument that the new taxation cannot be applied to ICMS benefits instituted before the new Law, under the argument that they violate the protection of taxpayers’ trust in the Public Administration, as well as the Section 178 of the National Tax Code (CTN), stating that exemption granted for a certain period and under certain conditions cannot be revoked or modified.
- Additionally, it’s possible to question, as a subsidiary claim, the calculation basis for the IRPJ credit granted by the new Law, as it may not fully reflect the magnitude of the investment subsidy.
The Law also provides for the possibility of a special arrangement for taxpayers wishing to regularize any debts that do not comply with the rules set by Law 12,973/2014.
Finally, among the changes made by the MP, there are also modifications to the calculation method of the Interest on Equity (JCP).
The KLA tax team is available to assess the individual situation of the company and take appropriate measures to protect its interests.