The Federal Accounting Council asks President Lula to veto provisions of the income tax reform that could limit the exemption on registered profits until 2025. The text approved in Congress provides rules and deadlines so that taxpayers affected by the higher minimum income rate are not subject to tax in connection with these results.
As it appears from BoundPublicly traded Brazilian companies have US$45 billion (about R$240 billion) in accumulated profits that have not yet been passed on to their partners, an amount that must be paid by 2028 so that their major shareholders can escape the minimum income tax.
One of the points raised by the Finance Committee is the obligation to calculate the results and determine the dividend by December 31, 2025. Another excerpt cited is the need to “pay, credit, employ or deliver” in the calendar years 2026, 2027 and 2028.
With this rule, it will be necessary to close the 2025 balance sheets and approve the statements at a meeting before the end of the year or on the last day of the year. Furthermore, many companies do not have the cash resources to pay dividends until 2028.
For the Board of Directors, the eventual imposition of these provisions would result in a serious compromise in the reliability of the financial statements, in the generation of artificial information, and in significant operational and organizational rework, requiring subsequent corrections and unnecessary adjustments in the Company’s deliberations.
“Requiring tax relief to be approved by companies by December 31, 2025 constitutes a technically unenforceable and legally inconsistent requirement,” the entity’s technical note says.
For a commodity mutual fund, the only legitimate requirement to exclude accumulated profits from the new minimum taxes and withholding taxes should be the fact that they are “linked to results calculated up to calendar year 2025”.
“The proposed presidential veto preserves the legal security of legal entities, ensures technical compliance with financial statements and avoids imposing hasty corporate deliberations, in violation of the current accounting system and the principles of legality, prudence, efficiency and faithful representation that guide the accounting profession and the Brazilian economic system.”
Tax specialist Milton Fontes, of Peixoto and Corey Advogados, also estimates that the transition rule conflicts with corporate legislation and accounting principles, especially the accrual principle.
“Profits and dividends cannot be calculated in the same year without disturbing the regularity and reliability of the financial statements. Approval of the distribution of profits depends on the general assembly, which is held by law in the first months of the following year, after the closing of the financial statements.”
Fontes points out that the Brazilian Corporate Law and Civil Code stipulate that deliberations on the allocation of results must take place in the first four months of the following fiscal year.
The lawyer says: “In the event that a presidential veto does not occur, companies must take legal measures to guarantee their rights to determine and enjoy income tax exemption on profits and profits earned until 12/31/2025.”
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