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New corporate taxation in Brazil: Are corporations ready?


The new corporate tax legislation is the most significant of its kind in Brazil for many years, not least because of its effect on accounting.

2015 is here and with it a brand new corporate taxation regime in Brazil, mainly as a consequence of the adoption of the international accounting standards as of 2008 by Brazilian legal entities (International Accounting System), which completely changed the form, procedures and rational previously applied to accounting records (Prior Accounting System).

The Prior Accounting System used to be guided by the legal nature and formality of the transactions, with no room for economic substance analysis, which is the main driver of the International Accounting System. Registration and valuation of assets and liabilities were also based on an historical cost approach, a rationale completely divergent from concepts of present and fair value applicable in the International Accounting System. Such issues are only some examples of the important differences on the systems.

Though the International Accounting System came into effect as of 2008, through Law No. 11,638/07, tax rules remained linked to the Prior Accounting System, requiring legal entities to keep separate accounting tracking for corporate and tax purposes. If this dual procedure was comfortable as it kept the known accounting environment for tax purposes, the far distance from the new records brought uncertainties as well.

It was then certainly time to take a chance. Brazil jumped over the Prior Accounting System and has necessarily moved on to a new corporate taxation regime in 2015. Law No 12,973/14 introduced the new tax rules, under which the International Accounting System is the starting point and all accounting records have tax impacts, except if Law No. 12,973/14 expressly states differently.

It is natural then to conclude that the accuracy of the accounting records takes a singular role in this new corporate taxation system as any mistake or misleading interpretation of the accounting procedures and principles can result in potential tax contingencies. As the International Accounting System is much more sophisticated and complex than the Prior Accounting System, the question that arises at this stage is whether Brazilian corporations are ready to apply the International Accounting System accordingly and take this for tax purposes.

In this transitory period, Brazilian legal entities will need additional support on accounting knowledge and discipline to avoid inappropriate tax reductions and to apply for deferrals of unrealised gains. Law No 12,973/14 generally provided deferrals, especially for fair value registrations, but imposed burdensome control procedures.

Probably Law No 12,973/14 is the most significant corporate tax legislation enacted in the last decades and Brazilian legal entities must take this jump seriously into 2015.

Andrea Bazzo Lauletta (

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