Originally published in the October 30 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil has restored tax breaks for exporters and other sectors that were revoked in September. Law 11,529/07 was published in the official gazette of October 23 and took effect the same date.
The tax breaks include a reduction of the export requirement for companies under the special Regime for Acquisition of Capital Goods for Export Companies (RECAP) created in June 2005, and the P.I.S. (Program for Social Integration contribution) and COFINS (Contribution for the Financing of Social Security) tax credits for some sectors.
The tax breaks were originally introduced by Provisional Measure 382, of July 23, but to approve the 0.38 percent bank transactions tax (CPMF) in 2007, the executive branch revoked Measure 382 (which was under review by the House of Representatives) and sent a law project instead.
Law 11,529 provides that companies in auto parts, machinery, vehicles, textiles, footwear, furniture, and some appliance sectors are eligible to take full P.I.S. and COFINS tax credits on purchases of fixed assets (machinery and equipment) destined for production. Before the law, those taxpayers were required to take P.I.S. and COFINS tax credits on those purchases in 24 monthly installments. This tax break seeks to compensate sectors hurt by the harmful valuation of Brazilian currency, because those sectors face difficulties in exporting their products at competitive prices, not to mention fierce competition of similar imported goods.
The law also grants zero P.I.S. and COFINS rates for vehicles and vessels used in school transport, under some conditions. This tax break, however, depends on future regulation to be issued by the executive branch.
Another major tax break was to exporters in general, qualified under RECAP and applicable to companies that export 80 percent or more of their production. RECAP suspends P.I.S. and COFINS on purchases of new capital goods. Law 11,529 reduced the export requirement from 80 percent to 70 percent to allow more companies to become eligible. The export requirement may be reduced to 60 percent in some cases.
Law 11,529 also grants a financial incentive, in the form of interest reduction or discount, for companies with up to BRL 300 million (approximately $166 million) in annual gross income in the following sectors: gemstones; wood and leather manufacturing; footwear and other leather products; textiles; and wood furniture.
David Roberto R. Soares da Silva, tax partner, Azevedo Sette Advogados, São Paulo