Brazil steps forward on harmonisation of worldwide accounting rules

The adoption of IFRS-based rules for tax purposes is compulsory for all taxpayers from 2015 on.

In 2007, the federal government decreed Law n. 11,638, which allowed for the convergence of Brazilian accounting standards with International Financial Reporting Standards (IFRS). Convergence with IFRS was intended to increase the comparability and transparency of financial statements and to improve the standing of Brazilian companies in the international financial and capital markets.

Continuing with the IFRS harmonization, in 2013 Provisional Measure (MP) n. 627/13 was enacted by the Brazilian government, revoking Law n. 11.941/09 and its transitory tax regime (RTT) adjustment method, and introducing new tax rules aligned to IFRS, but with some independent tax rules in specific topics.

In 2014 Provisional Measure 627/13 was converted into Law N. 12,973.

What are the changes? 

Under new provisions, the differences that would arise from IFRS and BR GAAP criterias can be deferred until the respective asset or liability is realised (liquidated or sold), since the taxpayers control those differences in subaccounts in each line of balance sheet subject to IFRS adjustments. This will help preserve tax neutrality during initial adoption of Law n. 12,973/14, postponing tax effects on the asset or liability until the realisation moment.

Other relevant changes include:

  • financial and operating leasing (depreciation and payment of the leasing fees)
  • public concessions and PPPs
  • subsidies for investment and capex
  • premiums and gain realised with the issuance of bonds
  • impairment tests
  • fair value of assets and liabilities.

These modifications could affect the basis for customers opting for “presumed profit method” calculation. As per Law 12,973/14, the basis used to determine the presumed profit must consider the new concept of gross revenue, decreased by handovers, cancelled sales and unconditional discounts. The former legal provisions determined that basis would only consist of gross revenue, without any discount. Additionally, the new concept of gross revenue is to be observed with respect to the calculation of gross revenue taxes (PIS and COFINS).

 

In other topics, as, for example, revenues, the above-mentioned law did not followe IFRS rules, adopting singular criterias.

What does this mean for taxpayers in Brazil? 

Since the initial adoption is compulsory in 2015, taxpayers need to revise the effects of IFRS in accounting reports and control the differences between IFRS rules and BR GAAP criterias before June, 2015. 

Taxpayers need to give special attention to proper accounting controls and financial statement layouts in order to avoid adverse tax consequences. They should also monitor each of these taxes as frequent changes in legislation may affect the calculation and payment of taxes, as well as the rules for preparing mandatory tax records.

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