Changes in the Rules for the Reimbursement of PIS and COFINS Credits and How This Affects Your Company

Provisional Measure No. 1,227 of June 4, 2024, published in an extra edition of the Federal Official Gazette, changed the rules on tax benefits and the offsetting and reimbursement of ordinary and presumed PIS/Cofins credits.

The change could have an impact on the cash flow of companies operating under the real profit regime.

What are PIS and COFINS?

PIS (Social Integration Program) and COFINS (Contribution to the Financing of Social Security) are federal taxes levied on company revenues. They are used to finance social security, including social security, social assistance and public health.

Companies operating under the real profit regime are subject to PIS and COFINS on a non-cumulative basis. This means that they can deduct PIS and COFINS credits paid on the purchase of inputs and other costs from the amounts owed on their sales.

By way of example, if a company buys inputs and pays R$1,000 in PIS and COFINS, when it sells the final product which is exempt from these taxes (as in the case of tax benefits, exports, or single-phase products - where the tax is paid at source, i.e. by the industry or the importer of the goods, who pays it only once), the reselling company does not pay PIS and COFINS on these sales, but still accumulates the R$1,000 credit.

Before the MP, the company could use this credit to offset other federal taxes, such as IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profit). With the new rule, this offsetting is no longer allowed. Now, PIS and COFINS credits can only be reimbursed in cash (a process that is generally slower and more bureaucratic).

Companies Affected by the Provisional Measure

1. Companies in the Real Profit Regime: Companies with annual turnover of more than R$78 million are obliged to adopt the real profit regime; Banks, financial institutions, insurance and capitalization companies, for example, must use the real profit regime; Companies that want to offset tax losses from previous years.

2. Companies with Tax Benefits: Companies that sell abroad and accumulate presumed PIS and COFINS credits (exporters); Companies that sell products from the basic food basket, which are exempt from PIS and COFINS (retailers of exempt products); Companies that sell products such as fuel, pharmaceuticals, drinks and auto parts, where taxation is concentrated at the initial stage of the production chain (Single-Phase Product Companies).

Companies that sell food included in the basic food basket, which is exempt from PIS and COFINS, need to take note of this change. Although their sales are exempt, they still pay PIS and COFINS when buying inputs and accumulate credits for these taxes. With the new rule, these credits can only be reimbursed in cash, and no longer offset against other federal taxes.

Impacts of the change

The change will lead to an immediate increase in costs for companies, as they will no longer have the benefit of immediate offsetting and will have to spend money to pay other federal taxes. They will also have to take into account the fact that receiving the reimbursement in cash can usually take longer than what is provided for by law (one year), impacting cash flow - which should already be taken into account in the company's financial management, with the need to reorganize the company's financial planning to take this new scenario into account, having to count on more money available to pay these taxes, without an eagerness to receive them in the short term.

Final considerations

According to Provisional Measure 1.227, legal entities that enjoy tax benefits must inform the Special Secretariat of the Federal Revenue Service of Brazil, by means of an electronic declaration, in a simplified format, of the incentives, waivers, benefits or immunities of a tax nature that they enjoy, as well as the amount of the corresponding tax credit. The Federal Revenue Service will establish the tax benefits to be reported, as well as the terms, deadline and conditions under which the information will be provided.

Penalties for Delay or Omission in the Declaration:

• 0.5% on gross revenue of up to R$ 1,000,000.00.

• 1% on gross revenue of R$ 1,000,000.01 to R$ 10,000,000.00.

• 1.5% on gross revenue above R$10,000,000.00.

• The penalty will be limited to 30% of the value of the tax benefits.

• A fine of 3%, not less than R$ 500.00, on the amount omitted, inaccurate or incorrect.

It is therefore essential that companies adapt to this new reality, maintaining robust financial planning and seeking legal alternatives to minimize the negative impacts. In addition, it is important to continue to monitor the progress of the tax reform and actively participate in the discussions, so that the changes promote a more favorable, sustainable business environment in line with the country's economic and environmental needs.

Contact us if your company is part of the sector affected by these changes, to offer specific guidance for your case and help plan the next steps.