Social Security Contributions Due By Companies Engaged In The Footwear, Apparel, Leather, Information Technology, Information And Communications Technology And Call Center Areas. Applicability. Change

Law nº 12.546 was published on December 14, 2011, consequent of Provisional Measure nº 540/11, which provided for the applicability of the social security contribution to the companies engaged in the footwear, apparel, leather, Information Technology (IT), Information and Communications Technology (ICT) and Call Center areas, and established the Special Regime of Reintegration of Tax Amounts for the Exporting Companies (Reintegração de Valores Tributários para as Empresas Exportadoras - REINTEGRA), among other measures.

With respect to Provisional Measure nº 540/11, the enacted law extended to December 31, 2014, the applicability of the social security contribution over the gross revenue amount at the rate of 2.5% substituting provisions in items I and III, art. 22, of Law nº 8.212/91 for the companies providing Information Technology (IT), Information and Communications Technology (ICT) and Call Center services.

The new system to pay the social security contribution does not cover the companies acting as representatives, distributors or dealers of computer software. And if the IT and ICT companies are also engaged in other activities, provisions in items I and III, art. 22, of Law nº 8.212/91 will apply to them, and the decrease of the social security contribution will be ensured to the extent of the relation between the gross revenue obtained from the activity not related to IT and ICT and the total gross revenue.

Provisional Measure nº 540/11 also provided that the footwear, apparel and leather industries would benefit from the substitution of the applicability of the social security contribution to the amount of the gross revenue at the rate of 1.5%. With the enactment of Law nº 12.546/11, there was not only the extension of the benefit to December 31, 2014 but the companies producing buttons, rivets and eyelets were also included in the new payment system; the furniture sector, however, was excluded.

In addition to the above changes, the enactment of Law nº 12.546/11 also brought changes that had not been provided in Provisional Measure nº 540/11.

The Law established the obligation to provide information for economic-commercial purposes to the Ministry of Development, Industry and Foreign Trade in connection with the transactions between those resident or domiciled in the Country and those resident or domiciled abroad involving services, intangibles and other operations producing variations to the property of individuals and legal entities.

Likewise, measures were established for the commercial protection of foreign trade by controlling the origin of the imported products to be checked by the Federal Police and the Secretary of Foreign Trade. The exporter/producer or the importer has to provide information in connection, among others, with:

I - the location of the producing establishment;

II - the operating capacity;

III - the manufacturing process;

IV - the raw materials used in the production; and

V - the rate of non-originating inputs used to obtain the product.

Finally, a presumed credit was established for the biodiesel producers amounting to 50% of the Contributions to the PIS and to the Confins applicable to the acquired inputs. Additionally, amendment to art. 1, §4, of Law nº 11.491/07 was vetoed, which ensured the investment of funds, from the FGTS Investment Funds, in projects related to the 2014 FIFA World Cup and to the 2016 Olympic Games.

(Law 12546, Dec. 14.2011 / DOU-I, Dec. 15.2011)

LEGISLATION

Derivatives contracts. Tax on Financial Operations (Imposto sobre Operações Financeiras - IOF)

Provisional Measure nº 539/11, issued with the objective of curbing bets against the dollar in the derivative markets, considered as a factor pushing the real appreciation up, determined the applicability of the one per cent (1%) rate as IOF on the acquisition, sale and settlement of derivatives contracts agreed based on the exchange variation. Such Provisional Measure was enacted as Law nº 12.543/11 in December of last year.

According to the established system, the maximum IOF rate applicable to the amount of the operations involving the derivatives contracts was set at twenty-five (25%). There is also the possibility of the exporting legal entity, in connection with the hedge operations, deducting from the IOF payable as a taxpayer, due in each period, the IOF calculated and paid over the notional amount agreed in the derivatives contracts.

If it is not possible to carry out such deduction, the exporting legal entity may request the rebate or the offsetting of the corresponding amount against taxes and contributions managed by the Brazilian Revenue Service, except for the social contributions of the companies applicable to the remuneration paid or credited to the insured individuals at their service, to those of the domestic employers and to workers, applicable to their contribution wage. The portion of the IOF that is deducted or offset will not be deductible for the purposes of determining the real profit and the basis for calculation of the Social Contribution over Net Profit (Contribuição Social sobre o Lucro Líquido - CSLL).

Further, the Law dismissed the IOF requirement over derivatives contracts in connection with tax events that took place between July 27, 2011 (date on which MP nº 539/11 was published) and September 15, 2011.

(Law 12543, Dec. 08.2011 / DOU-I, Dec. 09.2011)

RFB

Capital market taxation

Ruling Instruction nº 1.236, of January 11, 2012, changes provisions of Ruling Instruction nº 1.022/2010, which provides for the Income Tax applicable to net income and gains obtained in the financial and capital markets.

Among the main changes established by Ruling Instruction nº 1.236/11, is the taxation by the Income Tax of income obtained from the redemption of FIP-IE and FIPI-PD&I quotas. The applicable rates are: zero per cent (0%), when the income is obtained by an individual; and fifteen per cent (15%), when the income is obtained by a legal entity. These rates apply to operations accomplished in or out of the stock exchange.

Such Ruling Instruction also dealt with the taxation of bonds issued by a special purpose company organized to implement investment projects in the infrastructure area, or intensive economic production in research, development and innovation. It determined the applicability of the Income Tax, to be withheld at source, to income obtained by individuals or legal entities residing or domiciled in the Country. The individuals who obtained income with the redemption of the bonds will be subject to the zero rate Income Tax. The legal entities, in turn, will be subject to the withholding of fifteen per cent (15%) over the gain obtained with the redemption of the securities.

Finally, among other changes, Ruling Instruction n.º 1.236/12 also added to Ruling Instruction n.º 1.022/2010, articles 71-A and 72-A, to reduce to zero the income tax rate applicable to income from bonds and securities (investment fund and investment fund quota fund) acquired as of January 1st, 2011, object of a public distribution or issue of private legal entities not classified as financial institutions and governed by the Securities and Exchange Commission and by the Brazilian Monetary Council, when paid, credited, delivered or remitted to a beneficiary residing or domiciled abroad, except in a country where income is not taxed or taxed at a maximum rate below twenty per cent (20%).

(Ruling Instruction 1236, Jan. 11. 2012 / DOU-I, Jan. 12.2012)

PGFN

Fifteen Declaratory Acts were published by the PGFN which released the Attorneys General of the Brazilian Treasury from submitting answers or appeals, and further authorizing them to desist from appeals already filed

In an attempt to reduce the number of litigations dealing with issues already judged by the STJ and by the STF, the Attorney General Office of the Brazilian Treasury (Procuradoria Geral da Fazenda Nacional - PGFN) published fifteen Declaratory Acts so that the Attorneys may be released from presenting answers and appeals, and they may desist from appeals already filed, in lawsuits dealing with certain issues where the Federation is the defeated party.

Some of those issues are extremely relevant, such as the exclusion of the late payment fine in the event of spontaneous denouncement, based on the opinion that there is no difference between late payment and punitive fine. Additionally, it has been accepted as spontaneous denouncement the case where the taxpayers, after partial statement of the debt (subject to assessment by homologation), accompanied by the respective payment, submit rectification announcing (before a tax administration proceeding) the existence of an excess payment, the settlement of which takes place concurrently.

Also included in the release is the applicability of the Income Tax to the monies received as damages by the individual; the non-applicability of the social security contribution over the sole bonus provided in labor Collective Convention, separate from the wage...