Brazil: CARF Newsletter - May

CSRF: SOCIAL SECURITY CONTRIBUTION IS NOT DUE ON HIRING BONUS

In analyzing the taxation of the hiring bonus paid to executives, the Superior Chamber of Tax Appeals dismissed a tax assessment that attempted to collect social security contributions on hiring bonuses due to the legal nature of the payment. According to the decision, the hiring bonus has the nature of an indemnification.

The Federal Revenue Service argued that such payment should be taxed since it has a direct relationship with the directors’ work. In a unanimous vote, however, the Chamber decided that the hiring bonus is not a salary payment and, therefore, cannot be taxed via social security contributions.

The timing of the payment (before the hiring itself) and the fact that no goals were required to be met by the beneficiary to receive the bonus were the main points that led the Judges to exclude taxation. The CARF definitively canceled the tax assessment, and the Federal Revenue Service can no longer appeal the decision.

CSRF: THE 5-YEAR DEADLINE FOR NEGATIVE BALANCE REVISION IS NOT APPLICABLE IF IT DOES NOT RESULT IN ADDITIONAL TAX

The 1st Panel of the Superior Chamber of Tax Appeals decided that the 5-year statute of limitations of art. 150, §4 of the Brazilian Tax Code (CTN) does not apply to revisions of Net Operating Losses (NOLs) in the context of administrative discussions involving tax offsets. In the case analyzed by the Judges, the taxpayer offset tax credits originating in NOLs from years 1999 and 2000, and the Federal Revenue Service, in the course of the administrative proceeding, issued an assessment after the five-year statute of limitations (following the date when NOLs were recognized) had passed.

According to the Federal Revenue Service, there would be no obstacle in questioning NOLs made five years or more after their recognition. Tax authorities argued that the limit to verify the existence of tax credits available for offsets, in general, is that of §5 of art. 74 of Law No. 9,430/96, so the initial term of the statute of limitations is the date of the filing of the form that materialized the offset and not its date of recognition. Therefore, the statute of limitations contained in art. 150, §4 would not be applicable to prevent the revision of the NOLs, and the period when these where recognized would not be relevant for assessment purposes.

The taxpayer, on the other hand, argued that the 5-year statute of limitations of art. 150, §4 is necessary to guarantee legal certainty, and that the Federal Revenue Service cannot enjoy an infinite timeframe to review and assess the calculation of the tax, even more so regarding the calculation of NOLs and subsequent tax credits. In this sense, the taxpayer sustained that the initial term of the statute of limitations would have to be the period immediately after the losses where recognized, so that five years after that date, these losses could not be subject to an assessment.

The vote was tied, so the ruling was decided via the casting vote of the Federal Revenue Service in favor of the tax administration. The taxpayer can still take the matter before the Courts.

CARF: JUDGES APPLIED THE UNDERSTANDING OF THE FEDERAL REVENUE SERVICE ON THE EXCLUSION OF THE ICMS FROM THE TAX BASE OF PIS/COFINS

The 2nd Panel, 3rd Chamber of the 3rd Session of CARF recently ruled on a case involving a refund of an undue PIS/COFINS payment due to the inclusion of the ICMS on its tax base. The majority of the Judges decided to apply the terms of Internal Ruling n. 13, in the sense that the amount of the ICMS excluded from the PIS/COFINS tax base should be the monthly due value of the ICMS only.

Although the decision relied on ruling RE 574,706, issued by the Supreme Court for credit recognition purposes, it is important to note that the Court has not yet decided on which amount of the ICMS to exclude – whether the monthly due value or the total amount marked on the invoice. In this context, it is possible that the Court still may rule against the understanding of the Federal Revenue Service. If this happens, the Court’s ruling will be mandatory for CARF judges.

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.