Brazilian Federal Revenue Service regulates the declaration of tax benefits
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Brazilian Federal Revenue Service regulates the declaration of tax benefits

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Gabriel Caldiron Rezende of Machado Associados discusses the new regulation concerning the declaration of tax benefits and the additional – and unnecessary – difficulties for taxpayers

Provisional Measure 1227/2024, issued by the president, was published on June 4 2024, which, among its rules, determined that taxpayers that take advantage of tax benefits should declare the relevant benefits, as well as the waived taxes due to such, pursuant to regulation to be enacted by the Brazilian Federal Revenue Service (RFB).

As a result, on June 18, the RFB published Normative Instruction 2.198/2024 to regulate the declaration, creating the Declaration of Incentives, Waivers, Benefits and Immunities of a Tax Nature (DIRBI). The declaration must be presented with regard to 16 tax benefits listed in the normative instruction, most of them related to the social contributions on revenue (PIS and COFINS), as well as to corporate income tax (IRPJ), the social contribution on net profit (CSLL), and payroll tax relief.

Failure to present a DIRBI subjects the taxpayer to fines of 0.5% to 1.5% of its gross income, limited to 30% of the value of the tax benefits. In addition, a fine of 3% is applied on the amount omitted or incorrectly provided in the DIRBI.

Furthermore, it has been determined that DIRBIs must be filed by the 20th day of the second month following the calculation period. Nevertheless, taxpayers are already obliged to retroactively file a DIRBI related to the tax benefits availed between January and May 2024, which must be submitted by July 20 2024.

As a rule, taxpayers will have more than a month to prepare and submit a DIRBI; nevertheless, the first DIRBI, which will comprise five months, must be prepared in less than a month, which may lead to mistakes and the above-mentioned penalties.

Reaction to the introduction of the declaration in Brazil

The enactment of the DIRBI was negatively received by taxpayers, because it goes against the modern trend of simplification; is a new ancillary tax obligation imposed by the federal government, with very heavy penalties; and has retroactive effects.

Furthermore, the information to be provided in the DIRBI may be easily obtained by the federal government by analysing electronic tax returns, and thus represents an unnecessary and complicated redundance of information, which could lead to heavy penalties. 

Since 2007, Brazil has developed one of the most advanced and detailed electronic tax return systems, with deep information on the company’s activities, covering accounting, IRPJ, CSLL, PIS, COFINS, and payroll. These systems are so advanced that tax audits may be carried out automatically and in a computerised fashion, without the need for human intervention; thus, the information to be provided by the DIRBI could be obtained simply by adjusting the government’s tax audit parameters.

Further controversy and an extension of scope ahead?

Another highly controversial aspect is that the exposition of the motivation for Provisional Measure 1227/2024 stated that the obligation of submitting a declaration of tax benefits availed and tax waived was presented by the president in Bill of Law 15/2024, currently under discussion in the legislative branch. To this effect, if such ancillary tax obligation is being discussed by the Parliament, its imposition by the executive branch is highly debatable under the republican principle of tripartition of powers.

In any case, should the DIRBI be maintained, although currently directed at 16 federal tax benefits, Provisional Measure 1227/2024 does not limit the scope of the DIRBI but rather determines that such must be defined by the RFB, and thus other tax benefits (from other governments, such as state and municipal) could be included.

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