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Income tax reform will make tax planning more difficult
Interview granted by Ana Carolina Monguilod to Valor Econômico I November 22, 2021, at 05h01
Changes would be the IRS's "wish list
The Income Tax reform bill, forwarded to Congress by the federal government, prevents or hinders the adoption of at least nine practices common today in companies, which result in the reduction of taxes and contributions payable. In the market, these operations are called lawful tax planning, because they are not prohibited by law.
Among the measures listed, specialists warn that the use of goodwill would become illegal. The "capital reduction" and the "use of FIPs in mergers and acquisitions" would be taxed more heavily, closing the doors to tax planning.
The items make up what lawyers have called the "wish list" of the IRS, because they usually generate billionaire assessments and long disputes between the tax authorities and taxpayers, in the Administrative Council of Tax Appeals (Carf) and in court.
In the most recent report in which it talks about goodwill, from 2019, the IRS says it has conducted 116 inspections related to the topic, and applied assessments totaling R$56.6 billion.
The amount paid for the future profitability of an acquired or merged company, the goodwill could only be used as an expense, reducing the calculation basis of the IRPJ and CSLL payable, in corporate operations performed until the end of 2021 - according to the reform project. Today it can be amortized in up to five years. If the new rule is confirmed, say lawyers, it may take companies to court (read more in the article below).
Although the current law allows the amortization, the inspectors usually accuse taxpayers when they understand that the corporate reorganization had the sole purpose of reducing the payment of taxes - an abusive tax planning.
A survey conducted by the law firm Mattos Filho on the cases dealt with by Carf and the Judiciary until the end of 2020 shows that out of 164 cases of goodwill analyzed by the Superior Chamber, the last instance of Carf, only five had decisions in favor of the taxpayer. The same study shows that there were 56 judgments with decisions on the merits in the Judiciary in the same period - 29 in favor of taxpayers and 27 unfavorable.
"The tax authority has the interpretation in one direction, the taxpayer understands in the opposite way, and the adjustment comes to change the legal system as a whole. It will not solve past litigation, but create a new rule for the future, which, to me, confirms that in the past it could not tax," says lawyer João Marcos Colussi, partner at Mattos Filho law firm.
Among the other operations that are frequently in the tax authorities' sights are the sales of company assets through individual partners. The operation causes the taxation on the capital gain from the business to decrease from 34% to 15%.
In the so-called capital reduction, the individual's holding company returns its shares in the company to be sold to the shareholder. This shareholder then takes direct control of the company and makes the sale as an individual - with lower taxation.
The government's reform project, however, requires that the evaluation of the assets in the capital reduction be made based on the market value, generally much higher than the book value. The text states that the difference between the market value and the book value of the assets must be calculated for IRPJ and CSLL purposes by the company that returns the capital to the partner.
"The fact that there is a rule that imposes market value will certainly cause a reduction in the number of these operations", says Diogo Ferraz, from Freitas Leite law firm. According to the lawyer, Carf's counselors have been favorable to the taxpayer if they see a business purpose in the operation - besides the reduction in tax payments.
Ss Towers, a cell phone tower company, for example, managed to overturn a fine of about R$1 billion in the board.
The use of Participation Investment Funds (FIP) for mergers and acquisitions will also be impacted by the reform. When the deal is closed directly by the company, 34% IRPJ and CSLL are due on the capital gain. On the other hand, through the FIP, the tax rate established for individuals is applied, between 15% and 22.5%. The tax is paid by the shareholder at the moment he or she redeems the money from the fund.
The project prepared by the federal government says that if the FIP is not qualified as an investment entity, taxation will be the same as for companies as of January 1, 2022. If it is understood to be an investment entity, there will be automatic taxation on the disposal of assets.
About the use of FIP, Kleber Cabral, president of Sindifisco Nacional, which represents the country's fiscal auditors, says that "it has become a VIP investment, almost always for family groups". For him, the project tidies up the legislation so as not to generate more litigation. "It conforms to what is applied internationally," he says.
In 2019, the 1st Panel of Carf's Superior Chamber upheld an assessment of around R$4 billion applied to Tinto Holding, parent company of Grupo Bertin. This was the first case involving the use of FIP in the last instance of the council. The charge was due to the merger with JBS, in 2009.
For tax experts, however, the Union is trying, through the reform project, to put an end to a series of issues that bother it and cannot resolve with legal arguments. "It seems to be more concerned with closing taps," says Alessandro Borges, from Benício Advogados.
Professor at Insper, researcher at FGV-SP and partner at i2a Advogados, Ana Carolina Monguilod calls attention to a change that may affect the lives of directors and executives. Today, the company that offers stock options - payments made by companies through shares - to their employees can deduct such amounts from the corporate income tax (IRPJ) and the social contribution on net earnings (CSLL). The reform proposal prohibits the deduction in cases of employees outside the CLT regime.
"It will end up making companies less encouraged to use this instrument, which is very important for attracting talent, especially when we think of startups," says the lawyer.
There are also a number of other changes, foreseen in the bill, around operations carried out abroad. The "indirect capital gain", for example, affects foreign companies that hold shares in Brazilian companies. Any corporate operation carried out outside Brazil will lead to the payment of tax if there is a capital gain.
The current law does not reach these operations. But the tax authorities try to tax them if they believe there has been abuse or simulation, says lawyer Erlan Valverde, from the TozziniFreire law firm. "But the way the new rule is written, it applies to any situation," he says.
According to Valverde, if a multinational group that has a complex corporate structure does a corporate organization and transfers the Brazilian company indirectly, "it will have to pay the tax even if it is not selling the business," he says. In his vision, the government "weighed its hand a little bit" in the alterations.
The Federal Revenue Service was contacted by Valor to comment on the changes foreseen in the project, but did not return.
See the full article: https://valor.globo.com/legislacao/noticia/2021/07/12/reforma-do-ir-vai-dificultar-planejamentos-tradicionais.ghtml
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