In April, the federal government enacted Decree No. 8426, which reestablished the requirement of Contribution to the Employees' Profit Participation Program (PIS) and the Social Security Financing Tax (COFINS) on the financial revenues received by the legal entities subject to the system of non-cumulative assessment of said contributions, by increasing the (combined) tax rates to 4.65%, which had been reduced to zero by Decree No. 5442/2005.
However, although the rates of the taxes (PIS/COFINS) had been reduced to zero by Decree in the past, it is true that article 150, item I of the Federal Constitution forbids the creation or increaseof a tax that is not established by law. Nothing is stated about reduction of the tax burden, though. Thus, from this viewpoint, article 1 of Decree No. 8426/2015 violated the principle of tax legality.
Right after that, in August, taxpayers were surprised by the enactment of Provisional Measure No. 690 (PM 690) which, among other changes, revoked one of the tax benefits brought by the so-called ‘Well Law’, more specifically the benefit that formed part of the so-called ’Digital Inclusion Program’, which released the industry and the commerce from paying PIS/COFINS on the sale of several electronic products.
Two conditions were imposed:
(i) the benefit would be solely available to assets manufactured in Brazil in accordance with the basic production; and that
(ii) (ii) the tax benefit was scheduled to expire, more specifically on December 31 2018.
The Brazilian Tax Code, precisely due to the principle of non-surprise to the taxpayer, forbids an exemption granted for a definite term and based on certain conditions from being revoked at any time, leaving taxpayers flummoxed by PM 690.
Finally, in September, the Executive Branch submitted a Bill of Amendment to Constitution (PEC) No. 140 to the House of Representatives, which amends a constitutional provision in order to recreate the collection of Provisional Contribution on Financial Transactions (CPMF), at a tax rate of 0.20%, until December 31 2019. According to the text, the proceeds of collection of the contribution are intended to feed into social security funding.
There will be a lot of discussion in the House of Representatives and the Senate until the PEC is enacted and becomes effective, and, considering the several matters that shall be approached by the Legislative Branch during 2016 – including the request of impeachment of President Dilma Roussef – it is highly likely that the discussion about the recreation of the CPMF will be left behind.
These are just some of the examples of the issues faced by taxpayers in 2015. It is expected that in 2016, despite the significant challenges ahead, we may enjoy an environment of increased legal stability, in which the institutions, especially the judiciary, act in a manner that can be anticipated by taxpayers and society.
This article was prepared by Glaucia Lauletta Frascino, partner at Mattos Filho, Veiga Filho, Marrey Junior e Quiroga Advogados, an International Tax Review correspondent firm for Brazil.
