Revenue Deparment clarifies tax treatment of P.I.S./COFINS tax credits

Brazil’s Federal Revenue Department issued Interpretative Declaratory Act 3/2007, which clarifies the applicable tax treatment for P.I.S. (Program for Social Integration contribution) and COFINS (Contribution for the Financing of Social Security) tax credits for taxpayers under the noncumulative tax regime. The Act was in the official gazette on March 30 and states P.I.S./COFINS credits are not considered to be taxable income includable in taxpayers’ gross income. Instead, the credits serve solely to offset P.I.S. and COFINS liabilities. The act also provides guidance regarding recommended accounting procedures for P.I.S. and COFINS credits. It clarifies that even if the taxpayer adopts a different accounting procedure, in no event will taxable income can be affected by the credits.