Brazilian Federal government enacts Tax Recovery Measures

On January 12, 2023, the Brazilian Federal government enacted several administrative, budgetary and tax rules named the “Tax Recovery Measures”. The main changes in the tax rules are summarized below:

Provisional Measure No. 1,159/2023 – Modified the legislation applicable to the federal contributions “PIS” and “COFINS” to: (a) exclude, as from January 12, 2023, the value of the State Value-Added Tax (ICMS) from the taxable basis of the PIS and COFINS; and (b) deny, as from May 1, 2023, the credit of the PIS and COFINS on the value of the ICMS due on acquisitions by the taxpayer.

Provisional Measure N. 1,160/2023 – Modified rules concerning the federal administrative tax proceedings (valid as from January 12,2023), among which we highlight the following:

• Unfavorably to taxpayers, the “casting vote” was reestablished in case of a tied judgment by the Administrative Council of Tax Appeals (CARF), meaning that the positioning of the President of the Collegiate, which is a representative of the Federal Treasury, shall prevail. To implement this modification, Article 19-E of Law No. 10,522/2002, which had determined that a favorable decision to the taxpayer should prevail in case of a tied judgment by CARF, has been revoked. This issue was pending judgment by the Supreme Court;

• Up to April 30, 2023, taxpayers subject to a formal tax audit may confess and pay their due taxes with no penalties (i.e., ex-officio fines or penalty for delayed payment) before the issuance of a tax assessment. This measure may benefit the companies that are under tax audits, since this payment with no penalties was not allowed in this situation; and

• The maximum value for the so called “low complex” administrative discussion of tax debts as determined by Law No. 13,988/2020 has been increased from sixty to one thousand minimum wages (approximately R$ 78,000 or USD 15,000).

Joint Ordinance (“Portaria”) PGFN/RFB No. 1/2023 – Enacted the “Tax Litigation Reduction Program – PRLF”, establishing the conditions for the exceptional settlement of tax debts administratively discussed or enrolled in outstanding federal debt.

The adhesion to PRLF shall be made at the e-CAC portal between February 1^st,2023 and March 31, 2023. It may encompass:

• The payment in installments of tax debts, observing the limits determined by the applicable tax settlement rules;

• Discounts on interest and penalties related to tax debts in certain specific situations;

• The use of tax losses related to the Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL), observing the maximum limits determined by the applicable rules and by the Joint Ordinance PGFN/RFB No. 1/2023;

• The possibility to use public judicial debts called “precatórios” (liquid credit before the Federal Government, its autarchies, and public foundations, in the name of the party or acquired from third parties and determined by a final judicial decision) to pay tax debts or to partially pay a transactional debit, observing AGU Ordinance No. 73/2022.