Federal Government’s new provisional measure limits offset of PIS/COFINS credits

On June 04, 2024, the Federal Official Gazette of Brazil published Provisional Measure No. 1,227/2024, which limited the offset of credits relating to taxes administered by the Brazilian Federal Revenue Office (“RFB”), established new conditions for tax benefits, changed the jurisdiction of administrative proceedings involving the Rural Property Tax (“ITR”) and revoked the possibilities for reimbursement and offset of PIS/COFINS credits, as detailed below.

Tax Benefits

Provisional Measure No. 1,227/2024 determined that legal entities that benefit from tax incentives inform the RFB, through an electronic declaration, of the incentives, waivers, benefits or tax immunities and the amount of the corresponding tax benefit enjoyed.

In addition to this new obligation, Provisional Measure No. 1,227/2024established that the granting, recognition, qualification, co-qualification and enjoyment of tax incentives, waivers or benefits must comply with the following requirements:

• Registration with the Electronic Tax Domicile platform (Domicílio Tributário Eletrônico);
• Registration with the RFB;
• Compliance with all taxes and social contributions and be duly registered with the Registry of Outstanding Credits of Federal Agencies and Entities (“CADIN”) and in the Guarantee Fund for Length of Service (Fundo de Garantia por Tempo de Serviço – “FGTS”); and
• Absence of sanctions for acts of administrative improbity, temporary interdiction of rights, and other acts harmful to public administration that imply the penalty of prohibition of enjoyment of tax incentives.

Legal entities that fail to submit the Electronic Declaration will be subject to fines, which will to be calculated monthly or by fraction of the gross revenue earned, based on the following percentages:

• 5% on the gross revenue up to BRL 1 million;
• 1% on the gross revenue from BRL 1,000,000.01 up to BRL 10 million; and
• 5% on the gross revenue above BRL 10 million.

The penalties are limited to 30% of the value of tax benefits. Regarding the omitted, inaccurate or incorrect amount informed, a fine of 3%, of no less than BRL 500.00, will be applied.

Limitation for the Offset and Reimbursement of PIS/COFINS credits

Provisional Measure No. 1,227/2024 introduced a new limitation on the offset of PIS/COFINS credit. As of June 04, 2024, the use of such credits will only be allowed for offsetting debts from the PIS and COFINS contribution. The previous regulation allowed for the use of accumulated credits for compensation of any debts controlled by the RFB. In the case of accumulated credits and credits relating to the non-cumulative regime, there are no restrictions on reimbursement. Provisional Measure No. 1,227/2024 also revoked the possibility of using the credit balance of presumed credit for offsetting other debts, as well as the possibility of requesting cash reimbursement of such credits. Taxpayers who have presumed or accumulated credits as a result of non-incidence, suspension, exemption or zero tax rate must evaluate the alternatives to be able to use those credits or adopt legal actions.

Administrative Proceedings on the ITR

Provisional Measure No. 1,227/2024 assigned to municipalities and the Brazilian Federal District the competence to judge Administrative Tax Proceedings on the ITR. These federative entities can execute agreements with the RFB to undertake the duties of assessment, collection, instruction, and judgment of such processes, maintaining the supplementary jurisdiction of the RFB. Judgments must comply with the normative and interpretative acts published by the RFB.

Provisional Measure No. 1,227/2024 entered into force on the date of its publication and must be converted into law within 60 days, extendable for another 60 days, under penalty of losing validity.

Demarest’s Tax team is monitoring all legislative updates and remains available to provide any additional clarifications that may be necessary.