Brazil's Revenue Department Clarifies Transition Tax Regime


Brazil's Revenue Department Clarifies Transition Tax Regime


Originally published in the April 19 edition of World Tax Daily (Copyrights Tax Analysts)

Brazil’s Federal Revenue Department on April 13 published in the official gazette Normative Instruction 1,023/2010, which clarifies certain aspects of the transition tax regime (Regime Tributário de Transição, or RTT) created in 2009 to ensure the tax neutrality of the accounting rules introduced by Law 11,638/2007.

The RTT was created by Law 11,941/2009 to neutralize for tax purposes the changes in criteria for income recognition and the computation of costs and expenses introduced by Law 11,638/2007. It provides that for tax purposes, the taxpayer should follow the accounting criteria and methods effective as of December 31, 2007 (that is, before the enactment of Law 11,638/2007). For calendar years 2008 and 2009, the RTT was optional, but if elected, it had to apply to both years. It became mandatory as of calendar year 2010 and will remain in place until a definite tax regime is created to replace the RTT.

Normative Instruction 1,023/2010 clarifies the application of the RTT election in specific circumstances. It confirms that the election should apply to both the 2008 and 2009 calendar years and that it is not possible to make the election for only one calendar year.

The election also must have been made, irrevocably, in the 2009 annual corporate tax return, filed in 2009, and any difference in tax payments in calendar year 2008 resulting from the application of RTT in that year should be paid or offset by the last business day of June 2009. For companies starting operations in 2009, the election must be made in the annual tax return to be filed in 2010.

Once the taxpayer has made the election for the RTT, it is no longer possible to amend the tax return to reverse that election. If the taxpayer has not made the election, it is possible to file an amendment to the 2009 tax return to make the election.

Unpaid taxes resulting from the application of RTT, as described above, are free from interest and penalties if they have been paid by the last business day of June 2009; otherwise, the unpaid taxes are subject to delay or assessed penalties, as applicable, and interest.

David Roberto R. Soares da Silva