Brazil Launches Program for Payment of Company Tax Debts

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By Ed Taylor

The Brazilian government has issued a decree establishing a Tax Regularization Program to entice companies to pay their tax debts.

Under the decree, issued Jan. 5 and first announced Dec. 15, companies will be offered favorable terms to pay accumulated tax debts existing as of Nov. 30. They will be allowed to write off part of their taxes using financial losses reported as of Dec. 31, 2015, and declared by June 30, 2016.

Companies with credits resulting from financial losses can use these credits to write off up to 80 percent of their outstanding tax debts, with the remaining 20 percent to be covered by an initial cash payment. Companies could also opt for a cash payment of 24 percent over a two-year period, with the remainder of the debt written off using credits.

Companies without credits from financial losses could join the program with an initial 20 percent cash payment. The remainder would be paid over 96 months, corrected by Brazil’s base interest rate which now stands at 13.75 percent a year.

Application

Within the next month, the government will issue an application form for companies who will then have four months to sign up for the program. They will be required to list all of their existing tax debts and must agree to drop current appeals of these debts.

The program also permits companies to use any current tax credits to write off social security debts, something not allowed at present. Another attractive element of the program is that business groups can use the financial losses of one unit to write off taxes owed by the entire group.

Finance Minister Henrique Meirelles predicted the program will produce R$10 billion ($3.1 billion) in extra tax payments for 2017. He added that the main target of the program will be companies with large tax debts

The decree creating the program, Provisional Measure 766, must be approved by congress within 120 days or it will lose its validity. Congress could also alter aspects of the program by changing the decree.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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