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Carlos Eduardo Orsolon

Demarest Advogados, São Paulo

ceorsolon@demarest.com.br  

 

We are currently experiencing one of the greatest health crises ever seen in history. All continents have been strongly affected by the harmful effects of Covid-19. A pandemic of this magnitude has shown, beyond its undeniable damage to health and life of human beings, the capacity to profoundly affect economies on a local and international scale.

The government of Brazil, currently at the epicentre of this aggressive pandemic, has used several legal tax mechanisms (though not exclusively) to try to maintain its domestic economy at sustainable levels. Tax benefits, exemptions and postponement of payment deadlines are examples of such mechanisms created in the fight against the economic effects of Covid-19.

Taxes in Brazil are levied in three different spheres, by the federal, state, and municipal governments. The Federal Constitution of 1988, currently in force, has become an outdated text that, due to its inflexible structure, has stunted the implementation of the substantial changes necessary to simplify the tax system. For years now, the Brazilian legislature has been discussing a structural reform capable of simplifying this complex tax model, which currently burdenstaxpayers in an unbalanced manner. However, with the Covid-19 pandemic, debates on this matter have been put aside, at least for a while.

Nevertheless, the Brazilian government, as stated above, has granted different tax benefits to companies and individuals to support them through this period of crisis. Due to the plurality of benefits granted in the three different layers (federal, state and municipal), this overview will focus on the main tax benefits granted by the federal government only.

Tax reliefs

Among all the tax reliefs granted by the federal government to contain the economic consequences of Covid-19, it is worth mentioning the suspension of judicial litigation deadlines (STF’s Resolution No 670/2020 and CNJ’s Ordinance 79/2020);[1][2] and the suspension of procedural deadlines and administrative procedures within the Brazilian Federal Revenue Office (‘RFB’), the Attorney-General of the National Treasury Office (‘PGFN’), and the Administrative Tax Appeals Council (‘CARF’), which applies to all taxpayers, both companies and individuals (RFB’s Ordinance No 936/2020, Ordinance PGFN No 7,821/2020 and CARF’s Ordinance No 10.199/2020).[3] [4] [5]

Also worth mentioning is the creation of a new emergency credit line by the Brazilian Central Bank to enable small- and medium-sized companies to pay their employees' salaries and the relevant labour and tax costs for two months at an interest rate of 3.75 per cent per year. In return, companies that decide to contract this new emergency credit line must meet certain requirements, such as maintaining their staff and not firing employees during the loan period and for 60 days from the payment of the last instalment of the loan (Provisional Measure No. 944/2020).[6]

Brazilian companies are also able to suspend the employment contracts of their employees during the Covid-19 crisis, for a period of up to four months. Companies which choose to suspend such contracts shall offer a virtual course or a programme of professional qualification, directly or through entities responsible for the professional qualification, with a duration equivalent to the contractual suspension (Provisional Measure No. 927/2020).[7]

Specifically in tax matters, PGFN established an extraordinary settlement programme for tax debts enrolled with the outstanding debts list of the federal government, which enables medium and large companies to pay such debts up to 81 months. Further, individuals, small businesses and other specific entities – such as educational and health bodies – can pay their debts up to 142 months (Ordinance PGFN No. 9,924/2020).[8]

The federal government also granted an unconditional extension for an additional 90 days of the validity term of tax clearance certificates issued jointly by the RFB and PGFN, relating to federal taxes (Ordinance RFB/PGFN No. 555/2020).[9]

Tax exemptions

Besides the relief packages mentioned above, the federal government has exempted companies and individuals from payment, in part or in full, of some taxes. The Tax over Industrialised Products (‘IPI’) is an example; for certain products used by medical professionals, it was reduced to zero. (Federal Decree No. 10,285/2020).[10]

Another exemption was granted by the Management Executive Committee of the Foreign Trade Chamber, which reduced to zero the Import Duty (‘II’) rate of certain medical and pharmaceutical products aimed at combating Covid-19 (CAMEX’s Resolution No. 17/2020, with all its amendments related to this subject).[11]

The federal government has also exempted companies and individuals from the Tax on Financial Operations (‘IOF’), whose maximum rate usually corresponds to 3.38 per cent (Federal Decree No. 10,305/2020).[12] With this exemption, companies and individuals can contract loans to pay their bills, taxes and employees during the Covid-19 pandemic more easily, without this additional tax burden.

In addition, the tax rates of the contributions to the autonomous social services that are generally levied on the payroll was reduced by 50 per cent for April, May and June of 2020 (Provisional Measure No. 932/2020),[13] allowing companies to financially plan better during this difficult period.

Deadline extensions

Another line of emergency aid granted by the federal government is the extension of deadlines for compliance of tax obligations, among them the extension of the deadline for submission of the Annual Individual Income Tax Return to the tax authorities from 30 April 2020 to 30 June 2020; and the payment deadline of the Individual Income Tax balance, which was extended from 30 April to 30 June (Normative Ruling RFB No 1,924/2020 and Normative Ruling RFB No 1,930/2020).[14][15]

The Management Committee of Simples Nacional (the simplified tax regime) has extended the deadline for payment of the taxes owed by Brazilian taxpayers who opted for the Simples Nacional regime, whose payment is made through an unified document of collection, covering three periods of assessment (CGSN’s Resolution No 152/2020).[16] Usually, companies that opt for the Simples Nacional regime are considered small businesses, representing more than 80 per cent of the total number of legal entities in Brazil.

The deadline for the submission of the Annual Simplified Declaration (‘DAS’) was also extended to 30 June 2020 ( its deadline previously being 31 March 2020), as was the deadline for the submission of the Annual Simplified Statement for the Individual Microentrepreneur (‘DAS-Simei’), which was formerly due on 31 May 2020. For small companies, both statements are due annually (Resolution CGSN No 153/2020).[17]

The submission deadline of the Federal Tax Debts and Credits Statement (‘DCTF’), concerning the months of April, May and June, was extended to 14 July 2020, as was the deadline for the submission of the Digital Tax Bookkeeping of the Contribution to the Social Integration Programme and the Public Servants' Equity Formation Programme ('PIS/PASEP'), the Contribution for Financing of the Social Security ('COFINS') and the Social Security Contribution on Gross Revenues, concerning the months of April, May and June (Normative Instruction RFB No 1,932/2000).[18]

In addition, the payment deadlines of tax debts that were divided into instalments under the special programmes administered by the RFB and the PGFN were also extended for dates closer to the year end (Ordinance No 201/2020).[19]

Finally, the deadline has been extended for payment of employers' social security contributions to the National Institute of Social Security (‘INSS’), including those destined for PIS/PASEP, as well as the COFINS (Ordinance No 139/2020 and Ordinance No 150/2020).[20][21]

Conclusion

As can be seen, the federal government is providing several tax reliefs to companies and individuals in Brazil to mitigate the economic effects of Covid-19. The state and municipal governments have taken similar action in relation to taxes within their competence, although these have not been the focus of this short article.

Despite the Brazilian government's continuing efforts to keep the domestic economy healthy during this calamitous period, a structural tax reform capable of bringing the country closer to international guidelines, marked by simplification and efficiency, is still required.

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