International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazilian ruling means taxpayers must prepare specific balance sheet for tax purposes

The Brazilian Normative Ruling No 1,397/13 means taxpayers must propare a specific balance sheet for tax purposes. Antonio Carlos Marchetti Guzman, of Mattos Filho, explains why the tax authorities are now rowing against the tide with this measure.

In 2008, an entirely new set of rules was introduced in Brazil to govern accounting practices, principles, and procedures. The purpose of these changes was to eliminate the huge gap between Brazilian GAAP and International Financial Reporting Standards (IFRS).

Historically, Brazilian GAAP was not consistent with IFRS, because it was based upon certain practices and parameters that were often only loosely related to economic reality.

With the 2008 changes to the Brazilian accounting rules, substance over form prevailed for the first time in Brazil – new global reporting standards have improved the comparability, transparency, and credibility of financial statements, leading to greater economic efficiencies.

The new accounting rules in Brazil have a significant impact, from a tax perspective, for Brazilian legal entities and corporations with respect to a variety of items and so a transitory tax regime (RTT) was created in 2009 to neutralise the adverse impact. Based upon the RTT, corporate income tax is calculated based upon the accounting methods and criteria in force before the introduction of the IFRS in Brazil (on December 31, 2007).

In line with the introduction of IFRS rules, along with RTT, Brazilian tax and accounting procedures have definitely gone in different directions.

In acknowledgement of this, the Brazilian tax authorities recently issued Normative Ruling No 1,397 of September 13 2013 (NR No 1,397), which requires preparation of a specific balance sheet for tax purposes based upon the accounting rules in force on December 31 2007 (Tax Bookkeeping or ECF). ECF will be in force as of January 1 2014.

In practical terms, following the provisions of NR 1,397, Brazilian legal entities must prepare two different balance sheets: (i) one for accounting/corporate purposes based upon the IFRS, which will serve to disclose information to shareholders; and (ii) the other for tax purposes based upon the accounting rules in force on December 31 2007, which will serve to neutralise the IFRS effects and to calculate corporate income tax.

NR 1,397 has been very controversial, resulting in heated discussions between taxpayers and the Federal Revenue Secretariat to the extent that the obligation to prepare ECF necessarily creates additional operational costs. An additional element that will likely stoke the fire is the fact that the Brazilian government will enact a Provisional Measure to revoke RTT, by regulating the tax treatment to be afforded to accounting registers that relied upon the IFRS rules.

Once RTT comes to an end, one may conclude that tax and accounting methods may work in harmony, but with that, one important question remains: what is the need to maintain ECF? Unfortunately, it seems that the Brazilian tax authorities are indeed rowing against the tide.

Antonio Carlos Marchetti Guzman ( is a partner of Mattos Filho

more across site & bottom lb ros

More from across our site

Premier League football clubs are accused of avoiding paying up to £470 million in UK tax, while Malta is poised to overhaul its unique corporate tax system.
Bartosz Doroszuk of MDDP offers insights on Poland’s new tax legislation on shifted profits, as the implementation deadline looms nearer.
Four tax specialists preview the UK’s transfer pricing requirements, which come into effect on April 1.
The rise of the QDMTT will likely change how countries compete on tax and transfer pricing policy, but it may not reverse decades of falling corporate tax rates.
ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.