Conversion Of PM 627/2013 Into Law Nr. 12.973/2014: A New Round Of Controversy Approaches

Few issues in the tax area have had so many repercussions in recent times as Provisional Measure 627/2013 ("MP 627/3013"). It has led to a series of alterations in tax legislation, some of which were discussed in our 'November 2013 Alert' (http://migre.me/jd2mG).

The variety of issues and countless changes have caused a great deal of confusion amongst taxpayers. The repercussions of the legislation have been such that a group made up of top businesspeople met with representatives of the President's office and the Ministry of Finance, in Brasília, to discuss some of the more sensitive issues, as was widely reported in the press.

The fact that hundreds of proposals for changes to the original wording were presented to the National Congress is a clear indication of the importance and extent of the issues that the Provisional Measure covers. The enormous expectations surrounding the matter moved up to a new level with the conversion of the Provisional Measure into Law nr. 12.973, published in the Official Gazette of the Union on May 14, 2014.

An initial analysis of the new text reveals a few changes in relation to the original wording of the old Provisional Measure. On the other hand, many of the controversial areas remain unaltered, which leads us to the conclusion that the previously raised controversies are still a long way from being resolved. For greater clarity, this bulletin will limit itself to commenting upon some of the changes found in the new law, in comparison to the original wording of MP 627/3013:

Despite maintaining the creation of the 'LALUR Digital', which should be submitted to the IRS in digital form by means of SPED, there was an alteration in the form of calculation and the manner in which applicable penalties could be reduced should there be any non-compliance with this secondary obligation, as follows: (i) the late-payment fine, which had been 0.025% of gross income, was changed to 0.25% of the net profit before income tax; (ii) should the statement of sums be incorrect or inexact, the fine of 5% on the amount of the information in question, never being less than R$500.00, has been reduced to 3%, with this never being less than R$100.00. New scenarios for the limitation of the penalties, as well as mitigating circumstances, have also been created, which will reduce the impact; The new regulations concerning gains arising from advantageous purchases and goodwill in the acquisition of a corporate interest remain unaltered. However, a new paragraph has been inserted into article 21 of Decree-Law nr. 1.598/77 (see paragraph VI) concerning investment in branches, subsidiaries and affiliates overseas, which will be required to then be answerable to the accounting legislation of the domiciled country of this investment; New wording has been provided for the provision which covers the taxation of real estate exchanges. This alteration clarifies certain aspects, and mentions that its simple reclassification as a non-current/fixed asset represents income for tax purposes, which will certainly cause a great deal of discussion; Another new point involves the inclusion of article 38-A in Decree-Law 1.598/77. This provision establishes that the remuneration, charges, expenses and other costs...