Originally published in the June 18 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Federal Revenue Department on June 16 published Normative Instruction 949/2009 to regulate the Transitional Tax Regime (Regime Transitório de Transição or RTT) created by Provisional Measure 449/2008 and converted into Law 11,941/2009.
Law 11,638, which entered into force on January 1, 2008, introduced new accounting rules that bring Brazilian accounting standards closer to international financial reporting standards. The RTT will be effective until a new law specifically regulates all the tax aspects of Law 11,638, after which the RTT will be replaced by the resulting tax regime.
Normative Instruction 949/2009 regulates article 16 of Law 11,941/2009, which clarifies that the changes in criteria for income recognition and the computation of costs and expenses introduced by Law 11,638 will have no tax effect on corporate taxpayers.
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). For that purpose, it also provides that taxpayers under the RTT should generally use the following procedure to adjust the new accounting criteria for tax purposes to neutralize any tax effects arising from the new accounting standards:
- 1. Adopt the methods and criteria of corporate law (new standards) to determine, for accounting purposes, the business results before income tax and after the deduction of participations.
- 2. Use methods and criteria determined by tax laws (without new accounting standards) to determine the company’s business results for tax purposes.
- 3. Calculate the difference of business results between (1) and (2). Adjust the business results in the auxiliary income tax book to neutralize tax effects arising from the new accounting standards.
Articles 7-9 of Instruction 949 create a transitional income tax control book (Controle Fiscal Contábil de Transição) to control adjustments arising from the new accounting standards. But it applies only to corporate taxpayers that, cumulatively, calculate income tax in accordance with the actual income tax regime (lucro real) and are subject to RTT. The tax control book must be prepared electronically using software to be released by the Federal Revenue Department by October 15. It must be filed with the Federal Revenue Department by November 30 — for the 2008 calendar year.
Articles 5 and 6 of Instruction 949 regulate specific adjustment procedures applicable, respectively, to subventions for investments and donations received by corporate taxpayers from the government and for premiums arising from the issuance of debentures.
Instruction 949 also regulates the RTT aspects for companies under the presumed income tax regime (lucro presumido) (articles 10 and 11) and the application of the RTT to the P.I.S. (Program for Social Integration contribution) and COFINS (Contribution for the Financing of Social Security).
David Roberto R. Soares da Silva