Provisional Measure Nr. 627 – Important Changes In Brazilian Tax Legislation

After the publication of Normative Ruling nr. 1.397, by the Brazilian IRS, on September 19, 2013, it was highly anticipated the publication of a new act by the Brazilian Government clarifying several aspects of the consequences to tax arising from changes in commercial and accounting rules that taken place over the last few years. Within this context, Provisional Measure nr. 627 ("MP 627") was finally published on November 12, 2013.

Surprisingly, MP 627 has gone way beyond the scope initially imagined. MP 627 brings several changes to the corporate income tax legislation, some of which are summarized below:

Creation of a digital version of the 'Income Tax Calculation Book' ("Lalur Digital"), a new tax return which should be presented to the IRS electronically by means of the Public Digital System (SPED); Two penalties were established in case such auxiliary obligation fails to be observed: one equal to 0.025% of the gross monthly revenue of the legal entity that sends the 'Lalur Digital' in after the deadline. Such penalty will never be less than R$ 5,000.00 per month. The second penalty refers to a lack of information and to the provision of incorrect information to tax authorities. In this case, the penalty will be equal to 5% of the amount omitted or incorrectly informed to the tax authorities, never being less than R$ 500.00; It is strongly recommended to taxpayers pay attention to such obligations, especially to the second. Since this penalty is calculated upon each information incorrectly submitted, such penalty may be imposed several times, exceeding the amounts incorrectly informed. Penalties of this kind are common in the customs area, resulting in multimillion Real deficiency notices frequently being imposed by customs authorities. Another important modification (which was also expected) refers to the notion of 'goodwill'. Until now, the concepts of goodwill, surplus value, etc. adopted by tax legislation have differed from that used for accounting purposes. This topic has a history of dispute between taxpayers and the tax authorities. The concept of goodwill outlined by the new legislation is similar to that found in accounting rules. The old concept of goodwill and discounts are subdivided into: (i) surplus value and capital loss: the difference between the books and the 'fair value' of the assets; and (ii) goodwill; Differently from the lines followed in the past, a hierarchy between the foundations of goodwill was provided for...