Brazilian multinationals may deduct deemed credit from Corporate Income Tax and consolidate profits and losses until 2024

Efforts address Taxation on a Universal Basis and aim at an alignment with OCDE standards

Published on December 22, Provisional Presidential Decree No. 1,148/2022 extended for two years a few important rules that allow Brazilian multinationals to deduct deemed credits from Corporate Income Tax (IRPJ) and consolidate profits and losses in the total result of their parent company.

The rules, that have been renewed until 2024, are part of the Taxation on a Universal Basis (“Tributação em Bases Universais” - TBU), a tax system provided for under Law No 12,973/2022, and were scheduled to expire at the end of 2022.

Their purpose is to boost the competitiveness of Brazilian multinationals, simplifying their tax burden and aligning the country's standards with the ones set forth by the Organization for Economic Cooperation and Development (OECD).

Check out below the contents of the rules that have been renewed..

Consolidation of profit and loss for subsidiaries of Brazilian parent companies

For the next two years, Brazilian multinationals will be able to continue to record in their consolidated statements the profits and losses of all their subsidiaries abroad, without having to identify the need to pay taxes or offset tax losses for each of them on a case-by-case basis.

Thus, when determining the tax base and taxable income for the Brazilian parent company’s Social Contribution on Net Income (CSLL), the corresponding tax will only be due if and when the business group, as a whole, generates income, since the total balance will be determined by adding up the profit and loss of every subsidiary.

This system also benefits companies that wish to offset their tax losses. In the past, controlled companies that recorded a negative balance in a given year had to wait until they had a positive balance in the following years before an offset could be made.

It is worth pointing out that the possibility of consolidating profit and loss does not apply to investees located in countries with favored taxation and privileged fiscal regimes, nor to those whose active income is less than 80% of their total.

Use of deemed credit from Corporate Income Tax (IRRJ)

The deduction of deemed credit from Corporate Income Tax (IRPJ) at a 9% rate on the TBU results levied on taxable income has been extended until 2024. The benefit applies to Brazilian multinationals that own subsidiaries abroad that operate in the manufacture of beverages and food products, building construction and infrastructure.

Taxpayers may use their deemed credit to offset taxes collected abroad against those collected in Brazil, thus the profit of such companies will be taxed at a 25% threshold, which is comparable to the average applied by the OECD member states.

Entry into force

The law is effective as of the date of its publication (12/22/2022); however, because it is a Provisional Presidential Decree (Medida Provisória), the National Congress should convert it into law within 120 days from the aforementioned date, otherwise its effects will expire.

Strategic tax solutions

With a comprehensive overview of the Brazilian tax environment, Domingues e Pinho Contadores has a team of specialists ready to guide multinationals through processes that may represent opportunities for tax optimization. You can rely on our support: dpc@dpc.com.br.