Brazil: New rules for the deduction of losses on receipt of credits from financial institutions

The purpose of the new rules is to approximate tax and accounting standards

The purpose of the new rules is to approximate tax and accounting standards

Law 14,476 (conversion of Provisional Measure 1,128/22) was published on 17 November 2022, providing new rules for the deduction of losses incurred in receiving credits from financial institutions and other institutions authorized to operate by the Central Bank of Brazil. The new rules do not apply to consortium administrators and payment institutions.

The purpose of the new rules is to approximate tax and accounting standards, with a view to reducing the weaknesses resulting from deferred tax assets recorded in the balance sheets of financial institutions in connection with the implementation of the new recommendations of the Basel Committee on Banking Supervision on the capital structure and liquidity of financial institutions.

Under the new rules, the amount of tax-deductible losses on credit operations takes into account the application of two factors on operations with arrears greater than 90 days, one called “Factor A” and a variable resulting from the multiplication of Factor “B” by the number of months of delay after default on the operation. The values ​​established for factors “A” and “B” vary according to the type of credit operation, for example, credits for working capital, rural credit operations, commercial leasing credits, and credits arising from discount operations of credit rights.

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


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