Brazil: Tax updates concerning financial, insurance, and real estate industries

Tax developments that may affect companies operating in the financial, insurance, and real estate sectors.

Concerning financial, insurance, and real estate industries

Recent tax developments in Brazil may affect companies operating in the financial, insurance, and real estate sectors.

Regulation of the standardized declaration of the ISSQN (DEPISS)

Guidance (CGOA Resolution No. 4/22) regulates the standardized declaration of the tax on services of any nature (imposto sobre serviços de qualquer natureza—ISSQN) (declaration of the ISSQN (declaração padronizada do ISSQN—DEPISS)), regarding the provisions contained in Complementary Laws No. 157/16 and No. 175/20, which displace the payment of the ISSQN from the place of establishment of the provider to the place of establishment of the service taker.

Decision of the CVM Board – Distribution of income by real estate investment fund

The minutes of the meeting of the Board of the Securities and Exchange Commission (Colegiado da Comissão de Valores Mobiliários) were released, examining the request for reconsideration of the Board's previous decision, which had understood that the distribution of amounts to shareholders that exceeded the accounting profit should not be classified as income, nor increase the accumulated losses item of the fund.

In the decision on the request for reconsideration filed by the real estate investment fund, the Board reversed the previous decision that specified that the distribution of earnings calculated on the cash basis in an amount greater than the sum of the accounting profit for the year and the retained earnings of the fund's previous year or, in the event of an accounting loss, the full distribution of income, be accounted for as amortization of shares or return of capital.

In the decision, the Board also reinforced that the provision of information by the trustee of the real estate investment fund (fundo de investimento imobiliário—FII) to the shareholders in cases in which the values ​​of earnings calculated on the cash basis are higher than the accounting profit occurs in a clear and easy to understand way, especially in relation to clarification on the risks involved.

KPMG observation: Despite this issue being of a regulatory nature, if the decision was not reconsidered, there would be a potential discussion regarding the aspects to be considered for tax purposes, since the events (1) of amortization, and (2) of income distribution in relation to quotas traded exclusively on stock exchanges or on the organized over-the-counter market, have different tax treatments by a real estate investment fund that has at least 50 quota holders, for investors who do not own more than 10% of the total quotas issued by the fund or right receipt of more than 10% of the fund's total income.

Deadline for validating the balance of tax loss and negative basis

In a recent decision of the 3rd Panel of the Higher Chamber of the Administrative Council of Tax Appeals (3ª Turma da Câmara Superior do Conselho Administrativo de Recursos Fiscais—CARF), about counting the decadence for purposes of offsetting the tax loss calculated, it was defined that the period of five years begins to count from the formation of the tax loss and the negative base and not from the realization of the effective offset.

KPMG observation: This is a very relevant decision for taxpayers since the tax authorities have the practice of counting the period from the compensations made.

Complementary Law of the Federal District enacted amending the district legislation relating to the ISSQN

In the federal district, Complementary Law 1009/22 was enacted, providing that for all services related to the banking and financial sectors, including entities authorized to operate by the federal government or by those entitled to do so, the municipal service tax (imposto sobre serviços—ISS) rate of 5% will be applied.

Tax reform updates

The agenda on tax reform (PEC 110) that was scheduled to take place 31 May 2022 was again postponed due to lack of quorum and also lack of consensus.

In parallel, the government has been negotiating to tax dividends at a rate of 10% and reduce the corporate rate by four points, but this proposal also lacks a consensus in the legislature.

Read a June 2022 report (Portuguese) prepared by the KPMG member firm in Brazil


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