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Changes to Tax Legislation to Benefit Taxpayers
Provisional Measure 563 (PM), which came into force on 4 April 2012, creates new sector benefits and makes important changes in Brazil's tax legislation. Taxand Brazil describes the main changes introduced by the provisional measure.
Social Security Contributions and COFINS-Imports
The Provisional measure makes changes to the substitute social security contribution established under Law, and to the rules governing the COFINS-Imports social security financing tax.
Substitute Social Security Contributions
As a general rule, companies are required to pay social security contributions equal to 20% of their entire payroll. However, under the Plano Brasil Maior (the "Bigger Brazil Plan"), a substitute social security contribution was created for certain economic sectors, as a means to lessen the tax burden on companies' payrolls and promote formal employment. The new rules come into effect on 1 August 2012.
The PM also reduces the COFINS-Import tax on goods listed in the Schedule to Law. Previously, imported goods specified in the legislation were subject to a higher COFIS-Import rate, composed of the basic rate of 7.6%, plus an additional 1.5%, for a total of 9.1%. With the changes made by the PM, the combined rate drops to 8.6%, but now applies to a larger range of products. The changes in COFINS-Imports come into effect on 1 August 2012.
The changes introduced by the PM deal mainly with the methods used to calculate transfer prices in both import and export transactions with related parties or parties that enjoy privileged tax regimes.
Comparable Uncontrolled Price Method - CUP
In general terms, the CUP method will now use the weighted average price in sales made by the taxpayer or by third parties on similar payment terms.
Resale Price Method - RP
The RP Method is the method that is most changed by PM 563/2012, and is now calculated by the difference between the participation of the imported good, service or right in the final sale price and the corresponding profit margin.
PM 563/2012 creates new sector benefits, and makes changes to existing benefits. The main tax benefits are:
1) Creation of the National Program to Support Oncological Care, and the National Program to Support Health Care for Persons with Disabilities
2) Creation of the Special Incentive Regime for Computers for Educational Use, which will benefit companies that are successful bidders for supply of computers, software and technical assistance services under the One Computer for Each Student Program and their subcontracted suppliers
3) Creation of a Special Tax Regime for the National Broadband Program for Installation of Telecommunications Networks - REPNBL-Redes. Under this regime, PIS, COFINS and IPI are suspended (and convertible into zero-rate tax) on sale of new machinery, instruments and equipment, on construction material to be used in construction work covered by the program, and on services rendered by Brazilian legal entities to a taxpayer that benefits from the Regime
4) Creation of the Incentive Program for Technological Innovation and Strengthening of the Automobile Production Sector.
5) The zero-rate PIS and COFINS on imports and domestic sales of paper for use in printing newspapers and periodicals specified in Law 10.865/2004 is extended to 30 April 2016
Businesses in Brazil should familiriase themselves with the contents of the Provisional Measure and assess whether they stand to benefit from any of these changes and / or the sector benefits announced.
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