Tax Law in Focus: Maximizing Credits and Compensation Strategies
- Piva Advogados
- Feb 26, 2024
- 3 min read
Find out how recent court decisions can optimize the use of your tax credits, and learn more about the benefits and strategies for efficient offsetting.
When a taxpayer obtains a credit arising from a court decision on a tax matter that has already become final, i.e. a final decision that can no longer be appealed, it is necessary to first qualify this credit with the Brazilian Federal Revenue Service, which has jurisdiction over the taxpayer's tax domicile. Only after this request for authorization has been granted can the taxpayer use it for offsetting purposes.
However, the Federal Revenue Service published Cosit Consultation Solution No. 239/19, stating that taxpayers have a period of five years to offset the credit arising from a final and unappealable court decision and that it is not possible to continue offsetting until the credit is fully exhausted in the event that it is not exhausted within the five-year period. On the other hand, according to the consultation solution, neither can taxpayers claim an administrative refund of unused credits.
However, recently, court decisions have expanded the possibilities of using tax credits, understanding that there is no legal determination that sets the maximum time for the completion of the offset, that is, as long as there is credit, the offset can be carried out. In other words, there is no rule setting a deadline for the debtor to fulfill an obligation.
According to the Judiciary, the taxpayer has five years to start offsetting from the final and unappealable decision that recognized the right to the credit. The five-year period is for the offsetting procedure to be initiated, and there is no legal determination setting a maximum time for this offsetting to be completed. The time limit laid down in article 168 of the CTN, which states that "the right to claim restitution is extinguished with the expiry of 5 (five) years", is for the offsetting claim to be made and not for it to be made in full.
Thus, if you have credits arising from final court decisions, once the offsetting procedure has begun, you have a more flexible period in which to use these credits to offset tax debts, with full use of the credits recognized in court, until they are exhausted and without any time limit for their completion.
Benefits of the New Approach: Flexible deadlines, with more time to plan your offsets: Contrary to the IRS's previous understanding, which imposed a strict deadline for the use of credits, recent court rulings allow for a more flexible approach. This means more time to carry out more strategic tax planning, using credits more efficiently over time, without the pressure of tight deadlines.
Greater legal certainty: Backed by court rulings, you can be sure that you are acting within the law when using these credits for offsetting. This reduces the risk of questioning by the IRS and brings greater peace of mind to your operations.
Optimizing Cash Flow: The flexibility of the terms for using credits allows for more efficient management of the company's cash flow. Credits can be used strategically to optimize cash flow, reducing financial costs and improving the financial health of the business.
Maximizing resources: By using credits more strategically and over time, it is possible to maximize the use of these resources. This can have a significant impact on the company's bottom line, contributing to its profitability and competitiveness in the market.
This series of decisions reinforces the importance of careful analysis on the part of taxpayers and their lawyers, in order to guarantee the full exercise of their rights vis-à-vis the tax authorities. Count on us to help you maximize your results and ensure the success of your business.
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