The Special Regime for Reintegrating Tax Values for Exporting Companies (REINTEGRA, acronym for Regime especial de reintegração de valores tributários para empresas exportadoras), reinstituted by Law 13043/2014, is a tax benefit aimed at promoting exports of goods manufactured in Brazil (listed in Decree 8415/2015), by granting exporters the right to calculate the Social Contributions on Gross Revenues (PIS and COFINS) deemed credits based on export revenues.
This REINTEGRA tax benefit has been a great advantage for exporters, especially because the deemed credits may be used for offsetting against federal taxes due by the exporter or reimbursed in cash, and the amounts received as credits are not subject to Corporate Income Tax (IRPJ), Social Contribution on Net Profits (CSLL), and PIS and COFINS.
The deemed credits are calculated by applying a rate from 0.1% to 3% – to be determined by the Executive Branch – on each company’s export revenues. In this context, Decree 8415/2015 established that the applicable rate for this tax benefit in the period between January 1, 2017, and December 31, 2018, would be 2%.
However, on May 30, 2018, Decree 9393/2018 was published by the Federal Government, reducing, as of June 1, 2018, the rate from 2% to 0.1%.
The rate reduction carried out with immediate effect is unconstitutional, as it instantly increases the PIS and COFINS tax burden. This is because the Brazilian Federal Constitution establishes that increases in social contributions, such as the PIS and COFINS, can only produce effects after a 90-day grace period for the rule to become effective known as tax anteriority.
Tax anteriority, in our opinion, applies not only to tax rate increases but also to any tax burden increase, direct or indirect. To this effect, a reduction of a tax benefit equates to an indirect tax burden increase that should be subject to the tax anteriority.
There are precedents of the Brazilian Federal Supreme Court regarding past reductions of the REINTEGRA, in which the immediate reduction of the deemed credits rate, which could only be applied after the 90-day grace period, was deemed unconstitutional.
In this context, there are strong legal grounds to challenge the immediate effects of Decree 9393/2018, postponing it for 90 days, assuring the applicability of the 2% rate for the tax benefit during this period. Brazilian taxpayers are already challenging this matter, and have been obtaining favourable preliminary injunctions at the federal courts.
The Brazilian Federal Constitution establishes certain principles that exist to protect companies and individuals, such as tax anteriority and legal security. The constitutional rules cannot be simply disregarded by the government, under penalty of increasing even more the tax litigation in Brazil.
Ricardo M. Debatin da Silveira (rsilveira@machadoassociados.com.br) and Gabriel Caldiron Rezende (grezende@machadoassociados.com.br) are members of Machado Associados’ indirect tax team.
