The Brazilian Federal Revenue Service, through COSIT Consultation Solution No. 65, of March 1, 2019, has expressed its understanding that the reversal or recovery of the amount of late payment interest and compensatory fines that had been recognized as expenses, integrate the calculation bases of the Income Tax (IRPJ), CSLL, PIS and COFINS at the time of adhesion to the Special Program for Tax Regularization (PERT), instituted by Law No. 13,496, of 2017.
The justification is that this reduction of fine and interest related to taxes would be computed for purposes of determining the operating profit of companies because it is a recovery or refund of cost or expense, deduction or provisions (art. 441,II RIR 2018 and art. 2 Law 7689/88). As for the PIS and COFINS, the RFB’s understanding is that this recovery of costs or expenses, which constitute a reduction of obligations (tax liabilities), constitute revenue for the legal entity.
This understanding had already been expressed by the Federal Revenue Service when it issued the Consultation Solution No. 17 in 2010, when it had already stated that the remission or pardon of a tax debt would result in equity increase for the debtor, precisely because the write-off of the remitted debts causes an income, which gives rise to the incidence of federal taxes/contributions.
However, in view of the provisions of Normative Instruction no. 1,434/2013, the Response to Inquiry no. 65/2019, as it is a decision issued by the General Coordination of Taxation (“COSIT”), binds not only the taxpayer that submitted the inquiry, but also the entire inspection. Thus, Taxpayers that fit into the same situation as the one analyzed by means of COSIT Consultation Solution no. 65/2019 must follow the understanding issued by such government body.
The Tax Team is available for further clarifications on the subject.
Tax Team – DDSA Attorneys at Law
General Coordination of Taxation