The Brazilian Revenue Service enacted Normative Ruling no. 1,493 (IN 1,493, dated September 18, 2014) to regulate Law no. 12,973/14, which standardizes the Brazilian tax system with the International Financial Reporting Standards (IFRS).

The following aspects of IN 1,493 are worth highlighting:

1) Date of enforcement

IN 1,493, effective on September 19, 2014, provides that the modifications required by Law no. 12,973/14 will be applicable on: (i) January 1, 2014 for legal entities that have voluntarily applied for the new system; and (ii) January 1, 2015 for all other legal entities. IN 1,493 refers to these dates as the dates of "initial adoption".

2) Procedures for initial adoption

The tax neutrality established by Law no. 11,941/09 (RTT) was preserved for operations taking place prior to the initial adoption.

On the date of adoption, the positive difference between the value of the assets resulting from a criteria disparity between IFRS and RTT standards will be subject to corporate income taxes, except in the case where the taxpayer shows accounting evidence of a positive difference within subaccounts linked to the assets. In the latter case, taxation will be deferred to the moment the asset is depreciated, amortized, sold or written-off.

The same rationale applies to the negative difference between the value of liabilities resulting from a criteria disparity between IFRS and RTT standards, which can be taxed only at the time of write-off or liquidation of the liability, to the extent the negative difference is controlled by subaccounts.

The negative difference between assets (or positive difference between liabilities) will be taxed, except when otherwise controlled by subaccounts, in which case taxation may be deferred to the time of liquidation or realization.

IN 1,493 also establishes guidelines for the control of other items, such as:

  • balance of real estate credit sales profits;
  • balance of everlasting equity investments;
  • leasing agreements; and
  • results obtained from public services concessions.

Finally, IN 1,493 provides that legal entities taxed under the real profit method must prepare a detailed report indicating the abovementioned differences as of the initial adoption, which will be reported in the Taxable Income Journal.

3) Other subaccount controls

In addition to the assets and liabilities subaccounts controls which will be implemented on initial adoption, IN 1,493 regulates other kinds of subaccount controls, namely: (i) present value adjustment of assets as a result of long-term transactions and of undertaken obligations classified in non-current liabilities; and (ii) the gain or the loss incurred as a result of the fair value valuation of the asset or liability, including in the event of exchange.

Generally speaking, for as long as controlled in subaccounts, the amounts resulting from present value or fair value adjustments will only be taxed upon liquidation or realization.

4) Fines for a breach of ancillary tax obligations

IN 1,493 sets forth a specific fine for the late submission of the Taxable Income Journal. The fine will correspond to 0.25% of the net profit before corporate income taxes per month of delay, capped at 10%. In case no profits are obtained in the period the delayed Taxable Income Journal refers to, the profit of the latest period, increased by the Selic rate, will serve as the basis for the penalty.

Lastly, the submission of a Taxable Income Journal with inaccuracies triggers a fine amounting to 3% of the inaccurate amount.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.