On January 2, 2018, Normative Rulings RFB No. 1,778 and 1,780 (“NR 1,778” and “NR 1,780”) were published in the Federal Official Gazette, both related to Law No. 13,586/2017 (“Law 13,586”), resulting from the conversion into law of Provisional Measure No. 795/2017.
NR 1,778 provides for the tax treatment of expenses on exploration and development activities, production of oil and natural gas and their respective records, as well as the criteria for exhaustion and depreciation of the assets used in these activities.
In regulating Article 1 of Law 13,586, NR 1,778 establishes that:
- For the purposes of determining real profit and calculation basis of CSLL (Social Contribution on Net Profit), expenses related to operations or activities that have the objective of discovering and identifying deposits as well as of assessing the resulting discovery of oil or natural gas to determine its commerciability, must be reported, provided that such activities are carried out in the geographic area related to the exploration blocks for which the taxpayer holds the right to exploit as a result of concession, share or assignment agreements or on a consortium basis. In the case of a consortium, each party must record the operating expenses proportionally to its percentage share in the consortium;
- Contains a list of activities whose expenditures are covered in operating expenses (Article 2, paragraph 3);
- The register of operating expenses must be made in sub-accounts of the intangible asset, identified by the exploration blocks;
- The exploration phase extends to: (i) the end of the contractually defined term with the ANP; (ii) the moment of total return of the area of the exploration block to the ANP; or (iii) completion of the evaluation of the commerciality of the area relating to a producing field, whichever occurs first;
- With respect to the expense of asset depletion resulting from expenditures applied in development activities, such activities are the set of operations and investments intended to make feasible the production activities of a field by establishing the necessary infrastructure within the producing field. Development activities include drilling and completion of production and injection wells, as well as the construction of oil and natural gas extraction, collection, treatment, storage and transfer facilities;
- The development phase begins with the delivery of the Declaration of Commerciality to the ANP, which can coexist with the production phase, establishing a list of activities considered as "development activities";
- The calculation of the exhaust rate by the MUP (Method of Units Produced) comprises the ratio between (i) the total production of the field in the calculation period and (ii) the proved reserve volume of the same field on the last day of the previous calculation period;
- The definition of equipment and facilitatory instruments subject to depreciation.
In addition, NR 1,778 changes the wording of Article 2 of RFB Normative Ruling No. 1455/2014 (“NR 1,455”), in order to adapt it to the provisions of Law 13,586 regarding the withholding tax (IRRF) on income received by legal entities domiciled abroad when there is simultaneous execution of charter or lease of vessel and service contract, entered into with legal entities related to each other. Regarding this matter, the main changes brought by NR 1,778 were as follows:
- Express provision that in cases where the consignment is destined to a country or a dependency with favored taxation or a beneficiary of a privileged fiscal regime, the totality of the consignment will be subject to IRRF at the tax rate of 25%;
- Considering the possibility of the Minister of Finance changing the maximum percentage limits of the charter portion for purposes of zero rate of IRRF, there was an increase of 5 percentage points for vessels with floating systems of production or storage and unloading (FPSO). Thus, as of January 1, 2018, the percentages for 0% reduction of IRRF are as follows: (i) 75% for vessels with floating production or storage and unloading systems; (ii) 65% for vessels with a probe-type system for drilling, completion and maintenance of wells; and (iii) 50% for other types of vessels.
- Inclusion of Article 2-B, caput, paragraphs 1 to 6 in NR 1,455, regarding the calculation for application of percentages and verification of surpluses for purposes of IRRF levy. According to the caput of Article 2-B, the calculation basis for applying the percentages will be obtained by dividing the value of the remittance abroad for payment of the freight parcels in each calculation period by the result of the freight contract ratio on the total value of the sum of the freight and service contracts associated with it.
In turn, NR 1,780 regulates the payment and installment of debts related to the difference between the IRRF referred to in Article 3 of Law No. 13,586, as below:
- Debts, whether constituted or not, with suspended or unsettled claims, and in administrative or judicial proceedings, whose tax generating events occurred up to December 31, 2014, may be included;
- By January 31, 2018, the taxpayer must surrender the DCTF (Declaration of Federal Tax Credits and Debts), irrevocable and irreversible of the declared debt, and, if the debt is under administrative or judicial discussion, the taxpayer must also withdraw the challenge/administrative recourse or legal action and waive any claims of right;
- The withdrawal of a lawsuit will not be subject to payment of attorney's fees;
- Deposits related to the debts will be converted into final payments or converted into Union’s income, preceded by calculation of the IRRF due amount by virtue of the application of the percentages and application of the 100% reduction of the fines. If there is a remaining balance, the taxpayer may request a waiver of the outstanding amount, as well as pay upfront or in installments of the remaining debts;
- Adhesion requirement related to the payment or installment must be presented in digital format in the model set forth in Annex II of NR 1,780 and filed at the RFB unit of domicile of the legal entity by January 31, 2018;
- By January 31, 2018, the following documents must be added to the e-Process: the DARF (Federal Revenue Collection Document) that proves the payment of the debt or the first installment; copy of the articles of association or statute; breakdown of the debts to be paid; the formalization of the waiver of possible administrative or judicial proceedings; discontinuance of other active installments;
- Consolidated debt can be fully settled by January 31, 2018 or by installment in up to 12 consecutive monthly installments from January 31, 2018;
- Such provisions do not apply to vessels used for maritime support navigation.