Brazilian manufacturers of products used in IT and communication businesses that decide to invest in research, development, and innovation activities will soon be allowed to enjoy an incentive in the form of financial credits that may be deducted from various federal taxes.
According to the recently enacted Law no. 13,969/2019, qualifying taxpayers will be granted an amount of financial credits calculated on determined investments made in research, development, and innovation activities (generally, amounting to the expenditure multiplied by a factor of 2.39 to 3.41, but limited to a variable cap). Alternatively, taxpayers may elect for a yearly appropriation of credits based on an equation described in the law.
Obligations attributable to taxpayers interested in claiming the financial credits include, among others, (i) enrollment with applicable authorities in Brazil, (ii) a requirement to expend at least 5% of the adjusted income derived from the sale of certain IT and communication products and services described in Article 16-A of Law no. 8,248/1991 in determined research, development, and innovation activities; (iii) a duty to register and report certain financial and operational information, and (iv) the commitment to carry out business in Brazil according to a pre-approved plan (processo produtivo básico).
Financial credits themselves shall be virtually tax free, from a Brazilian perspective, and may be used to either (i) substantiate a refund claim (ressarcimento) from the Brazilian Treasury; and/or (ii) liquidate various federal taxes and social contributions.
Failure to comply with applicable obligations may lead to various penalties that include the return of refunds already paid by the Brazilian Treasury (plus interest and a 75% fine), the disallowance of the liquidation of federal taxes (plus interest and 50-75% fines), and the termination of the taxpayer’s right to use the incentive.
The new incentive is still pending regulation by various Brazilian agencies but rules and forms are forthcoming.
Everything considered, this new incentive may play an important role in the fostering of IT and communication businesses in Brazil and, at the same time, trigger a positive cycle of research, development, and innovation in the country, benefiting various players in addition to the taxpayers that decide to apply under Law no. 13,969/2019.
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