Brazil Releases Payment Rules for Tax Debt Program

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By Ed Taylor

Brazilian companies have now received the information they need to participate in a new government program offering largely favorable terms for the payment of tax debts.

The federal revenue service Feb. 1 released Normative Instruction 1687 containing rules for the Tax Regularization Program established by a government decree issued Jan. 5. The informative instruction defines what credits companies can use within the program.

Companies with credits resulting from financial losses reported as of Dec. 31, 2015, and declared by June 30, 2016, can use these and other accumulated 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 could join the program with an initial 20 percent cash payment. The remainder would be paid over 96 months, corrected by Brazil’s benchmark interest rate, now standing at 13 percent a year. If no initial cash payment is made and companies don’t have credits, their debts would be paid over 10 years.

Companies have until May 31 to sign up for the program, and a form for this purpose has been placed on the web site of the revenue service.

Include All Debts

Those that join the program will have to include all of their tax debts existing as of Nov. 30, 2016. To remain in the program, they must meet all of their subsequent monthly payments. If they fail to do this, they will be removed from the program and will be required to pay their remaining tax debt.

Participating companies must also agree to drop all current challenges of their existing tax debts. Any guarantees used to cover contested tax charges must be immediately applied to pay those taxes, according to the program’s rules. Any amount left over would have to be used to pay other tax debts.

Contrary to previous government tax debt payment programs, this time there will be no reduction of penalties or interest charges for any of the options.

“We are always concerned with the immense majority of taxpayers who meet their obligations. We can not create an unfair form of competition with these taxpayers,” said Revenue Secretary Jorge Rachid in explaining why no penalty or interest rate reductions were included in the program.

Tax attorneys told Bloomberg BNA via e-mail on Feb. 2 that the program is generally favorable to companies. For attorney Roberto Goldstajn of the law firm Fernandes, Figueiredo, Francoso and Petros Attorneys, the program is interesting for well-structured companies that can assume the responsibilities required by the revenue service.

“A declaration of bankruptcy would exclude a company from the program and if a company drops a legal challenge to include a tax debt in the program, it cannot resume its challenge later,” he said.

According to Rachid, the revenue service will consolidate the debts of participating companies in October, when it will announce the amount that will be restructured for each company. He added that the government expects the program to generate $3.2 billion in tax revenues.

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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