24.09.2013 - Regulation Of Transition Tax Regime - IN RFB NO. 1,397/1

On September 17, 2013, the Brazilian Federal Revenue (Receita Federal do Brasil - "RFB") issued the Normative Instruction (Instrução Normativa - "IN") no. 1,397/13, which provides for the Transition Tax Regime (Regime Tributário de Transição - "RTT") established by Articles 15 and following of Law no. 11,941/09. It is worth mentioning that such regime was instituted in order to neutralize, for taxation purposes, the effects of the profound changes in accounting methods and criteria introduced by Laws 11,638/07 and 11,941/09.

In general, the IN no. 1,397/13 aims to regulate many controversial issues involving the RTT, among which stand out the institution of Tax Bookkeeping (Escrituração Contábil Fiscal - "ECF"), statements and concepts of the Taxable Income system (Lucro Real), debentures premiums, subsidies to investments and donations, evaluation of investments by its net worth, presumed profit (Lucro Presumido) and Contributions to the Social Security Funding ("COFINS") and to the Employee Profit Sharing Program ("PIS"), plus the rules related to dividends and interest on net equity (Juros sobre o Capital Próprio - "JCP"), which were analyzed by us in a specific Memorandum dated 09/19/20131.

I - TAX BOOKKEPING ("ECF")

At first, we emphasize that this IN establishes the Tax Bookkeping from the calendar year 2014, which is an accessory obligation contained in the entry of a new accounting, according to the accounting principles and rules that were effective on December 31, 2007. That is, starting from the calendar year 2014, corporations will have two accounting statements, one based on current accounting standards for corporate and accounting purposes, and another based on the accounting standards in force on December 31, 2007, for tax purposes.

We believe this new accessory obligation may be challenged in the Judiciary, as it offends the constitutional principle of proportionality for being, strictly speaking, unnecessary, given that the Transitional Tax Accounting Control (Controle Fiscal Contábil de Transição - "FCONT") fully accomplishes the duty of promoting the adjustments arising from the RTT, especially since we are dealing with transitional adjustments that soon will be replaced by a new legislation on the taxation of income and profits.

It is also important to stress that the taxpayer, in accordance with article 10 of the IN, must elaborate balance sheet, income statement and the accrued profit and loss statement based on the...