On January 5, 2017, Provisional Measure No. 766/2017 was published in the Official Gazette, creating the Tax Regularization Program (“PRT”) administered by the Brazilian Federal Revenue Service (“RFB” or the “Brazilian IRS”) and the Office of the Attorney General of the National Treasury (“PGFN”).
The program, which was created by the Brazilian federal government, allows the payment of federal tax debts due by November 30, 2016, including debts that are already subject to previous installment payment programs, that are being discussed in administrative proceedings or judicial lawsuits or that arise from tax assessments issued after the publication of the provisional measure. Note that the program does not grant any discounts of interest or fines.
Participants in the program: (i) must make an irrevocable and irreversible admission of the tax debt; (ii) have an obligation to pay regularly and timely the installments of the debts included in the PRT and the debts due after November 30, 2016, whether or not they are registered among overdue federal liabilities; (iii) cannot include the debts enrolled under the PRT in any other form of subsequent installment payment; and (iv) must regularly fulfill obligations before the Employee Severance Indemnity Fund (FGTS).
The debts can be settled through the following options:
(i) For companies with tax losses and negative basis of CSLL or with other tax credits
- Option 1:
With a cash payment of at least 20 percent of the value of the consolidated debt and a settlement of the remaining balance with tax losses and negative balance of CSLL or with other own credits related to taxes administered by the Brazilian IRS.
- Option 2:
With a cash payment of at least 24 percent of the consolidated debt in 24 monthly and successive installments and a settlement of the remaining balance with the use of tax losses and negative balance of CSLL or with other own credits related to taxes administered by the Brazilian IRS.
Any remaining balance can be paid in up to 60 additional installments, payable from the following month the cash payment or the following month the payment of the 24th installment, in the minimum amount of 1/60 of the related balance.
The tax losses and negative balance of CSLL that can be used are the ones calculated up to December 31, 2015, if the legal entity or economic group informs the tax authorities by June 30, 2016.
(ii) For other legal entities and individuals
I. With a cash payment of 20 percent of the value of the consolidated debt and payment in installments of the remaining balance in up to 96 monthly and successive installments; and
II. With a payment of the consolidated debt in up to 120 monthly and successive installments, calculated in order to observe the following minimum percentages, applied to the value of the consolidated debt:
a. From the 1st to the 12th installment – 0.5%
b. From the 13th to the 24th installment - 0.6%
c. From the 25th to the 36th installment - 0.7%
d. From the 37th installment onwards – a percentage corresponding to the remaining balance, in up to 84 monthly and successive installments
The payment methods above also apply to the debts enrolled. With debts enrolled, the installment of debts whose consolidated value is equal to or greater than BRL 15 million will depend on the presentation of a guarantee letter or guarantee insurance.
To participate in the PRT, taxpayers have to submit the application form up to 120 days after the issuance of the regulations by the RFB and PGFN, and include the debts under administrative or judicial discussion indicated in the PRT and the total amount of the debts in the name of the taxpayer or the responsible party.
For more information regarding this legal update, please contact TaxpartnersTC@mayerbrown.com.
Observations in this update about Brazilian law are by Tauil & Chequer Advogados and are not intended to provide legal advice. Any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.