Tuesday, May 20, 2008

Brazilian Exporters Surprised by Change of Position on Inflation Correction

Excerpt from Practical Latin American Tax Strategies
published by WorldTrade Executive

Brazilian exporting firms have been surprised by the sudden reversal of a longstanding policy correcting tax credits for inflation.

For years, exporters have been able to use credits from their “presumed” excise tax (IPI) to compensate for payments of Brazil’s PIS-Cofins corporate social security taxes. This compensation was created as a fiscal incentive for exporters. Rather than exempt exporters from PIS/Cofins, which would have required legislation, the government adopted an administrative approach, granting a credit for what companies would have paid in excise taxes, the reason why it is referred to as the “presumed IPI.”

In practice, exporters have commonly allowed these credits to accumulate over several years before claiming them. Since these credits often date back six or seven years, the tax department has permitted companies to adjust their credits for inflation, using the country’s base interest rate.

But starting last December, the tax department has rejected this practice. In a series of decisions in February and March of this year, the department’s Superior Chamber of Fiscal Appeals, the last administrative recourse for companies, has supported this new policy, turning down the appeals of exporting firms.

More: How does this affect compensation for exporters?>

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