Brazil Extends Tax Benefits And Amends Tax Rules

Brazilian Law 13,097/2015, which extends some tax benefits and amends some tax rules, was published in the official gazette on January 20. Some of the most relevant measures for corporate taxpayers are summarized below.

Bad Debt Deduction

Law 13,097/2015 increases the amounts eligible for bad-debt deduction by companies under the Actual Method (Lucro Real)/1/ for the calculation of corporate income tax. The new amounts, which apply to debts in default after October 7, 2014 (the date of publication of Provisional Measure 656/2014, the precursor to Law 13,097/2015), are as follows:

insolvent (financial) debtors: any amount as long as the insolvency has been declared by a court of law. This rule also applies for amounts in default before October 7, 2014; unguaranteed debts: up to BRL 15,000 (about $5,770) for amounts overdue more than six months (for amounts in default before October 7, 2014, the eligible amount is BRL 5,000); BRL 15,000 to BRL 100,000 for amounts overdue more than one year, provided that the taxpayer has administrative collection procedures (for amounts in default before October 7, 2014, the eligible amount is BRL 5,000 to BRL 30,000); guaranteed debts: up to BRL 50,000 regardless of any judicial collection procedure or execution of the guarantee (there was no similar rule for amounts in default before Oct 7, 2014); above BRL 50,000 for amounts overdue more than two years, provided that the taxpayer has judicial collection procedures or executes a guarantee (these requirements also applied for any guaranteed debt that was in default before October 7, 2014, regardless of value); bankrupt (legal) debtors: any amount as long as the taxpayer has reported its credit in the bankruptcy process (this rule also applies to amounts in default before October 7, 2014); and debtors under judicial reorganization (similar to U.S. Chapter 11): any amount that exceeds the amount accepted for payment in the recovery plan (the same rule applies for debts in default before October 7, 2014). Presumed Tax Credit for Acquisition of Solid Residues

The law also extends through December 31, 2018, the presumed federal excise tax (IPI) credit for the acquisition of solid residues for use in the manufacture of new products.

The presumed tax credit -- created by Law 12,375/2010 and regulated by Decree 7,619/2011 -- is intended to encourage the use of recycled materials. Solid residues are defined by the regulation as "discarded materials, substances...