By Evelin Spinosa

The Brazilian Federal Revenue Service (“RFB”), through Normative Instruction (“IN RFB”) No. 1,810, of June 13, 2018, unified the legal regimes for tax compensation (tax and social security credits – INSS), in relation to legal entities that use the Digital Recording System for Tax, Social Security and Labor Obligations (e-Social).

In this way, companies will be able to offset federal taxes of any nature (e.g.: PIS/COFINS, IRPJ, CSLL) with social security contributions (INSS) and contributions destined to other entities (third parties).

It should be noted that this is a long-standing request from taxpayers, especially in relation to companies that have an accumulated stock of tax credits.

In 2007, the Federal Revenue Service and the Social Security Revenue Service were merged into the RFB, through Law 11,457 of 2007, called Super Revenue, which began to accumulate the collection process of taxes and social contributions. With this change, there is a direct impact on the way federal taxes are collected and on the legislation that deals with compensation, since article 74 of Law 9,430 of 1996[1], establishes that the taxpayer who determines tax credit may use it to offset his own debts related to any taxes and contributions administered by the Federal Revenue Service.

Thus, with the unification of the tax and social contribution collection process around the so-called Super Revenue, the requirement for offsetting social security contributions with other federal taxes was met by legislation.

On the other hand, the RFB, based on the interpretation given to law 11.457/07, alleged the impossibility of offsetting tax credits with social security debts and vice-versa, due to the fact that the collection control systems for these taxes/contributions were not unified. Since then, all sub-legal acts issued prohibited the offsetting of tax credits calculated by taxpayers with social security contributions.

It was in this context that IN RFB 1,810, of 2018, was published, which amended article 65 of IN RFB 1,717, of 2017.[2]:

• Original text of IN 1.717/17

Art. 65. The taxpayer who determines credit, including credit resulting from a final court decision, related to a tax administered by the RFB, subject to refund or reimbursement, may use it to offset his own debts, due or falling due, related to taxes administered by the RFB, except for social security contributions, the procedure for which is set out in Sections VII and VIII of this Chapter, and contributions collected for other entities or funds. (changed section)

• Text changed by IN 1.810/18

Art. 65. The taxpayer who determines credit, including credit resulting from a final court decision, related to a tax administered by the RFB, subject to refund or reimbursement, may use it to offset his own debts, due or falling due, related to taxes administered by the RFB, except for the offsetting referred to in Section VII of this Chapter. (amended section)

The new wording no longer includes the reservation regarding the offsetting of social security contributions with credits relating to any taxes administered by the Brazilian Federal Revenue Service, except for the offsetting of social security contributions by taxpayers who do not use eSocial.

Thus, two social security contribution compensation schemes were established:

• General regime: referring to companies that use eSocial; and,
• Special regime: for companies that do not use eSocial, calculating social security contributions in GFIP/SFIP, which in turn is being replaced by DCTFWeb[3].

It is noted that the Federal Government intends to encourage companies to migrate to eSocial[4], and also allow the use of tax credits accumulated by taxpayers to offset social security contributions.

Furthermore, the Federal Revenue Service, when issuing IN 1.810/18, not only unified the legal regimes of tax compensation (tax and social security credits – INSS), in fact, it instituted a new compensation regime that will, as a rule, come into force from now on.

Therefore, the stock of credits previously existing in the taxpayer's tax records cannot be used in the new regime, that is, they can only be offset against the imposed limitations (contributions x contributions or other taxes x other taxes), or they can be subject to refund by the taxpayer.

We highlight the main changes in the regime, determined through article 76 of IN 1.717/17[5]⁵, which deals with the prohibitions in the compensation regime, in which restrictions were stipulated on the use of credits determined by the taxpayer:

• Debts prior to the use of eSocial: it is not permitted to offset debts relating to periods prior to the use of eSocial, both in relation to other taxes administered by the RFB and for social security and third-party contributions;

• Credits prior to the use of eSocial: the use of credits from assessment periods prior to the use of eSocial is not permitted, both in relation to other taxes administered by the RFB and for social security and third-party contributions;

• Social security and third-party contributions when the taxpayer does not use eSocial: It is not permitted to offset social security and third-party contributions, without restriction, with other taxes administered by the RFB, in the event that the taxpayer does not use eSocial to calculate said contributions.

• Change as to compensation of amounts related to the retention of social security contributions in the transfer of labor and in the contract, with the definition of regimes for companies that use eSocial and those that continue to calculate contributions in GFIP.

The regime for companies that do not adopt eSocial, i.e., calculate and collect their contributions through GFIP/SFIP, remains unchanged. Therefore, for these taxpayers there was no unification of the social security regimes and other federal taxes.

Therefore, it is time to recalculate tax planning, the option for taxation regimes (Real Profit, Presumed Profit and Simples Nacional) and structure tax guidelines for the coming years.

However, for the second half of the 2018 calendar year, there is the possibility of some tax savings through the offsetting of tax and social security credits, mainly because several tax benefits for the production sector were reduced/extinguished (e.g.: Payroll Tax Exemption and Reintegration).

The Mazzucco & Mello tax team is available for any additional clarification.

By Evelin Spinosa

[1] Art. 74. The taxpayer who determines credit, including final and unappealable judicial decisions, relating to a tax or contribution administered by the Federal Revenue Service, subject to refund or reimbursement, may use it to offset his own debts relating to any taxes and contributions administered by that Agency.

[2] IN RFB 1,717, of July 17, 2017: Establishes rules on restitution, compensation, reimbursement and refund, within the scope of the Brazilian Federal Revenue Service.

[3] The Declaration of Federal Tax Debits and Credits for Social Security and Other Entities and Funds (DCTFWeb) is an additional tax obligation regulated by IN RFB 1,787/2018, which will be used to calculate social security contributions (INSS) and for other entities and funds (Third Parties). This Declaration will replace part of the GFIP/SEFIP and will be fed by periodic events sent by taxpayers through the Public Digital Accounting System (“SPED”) EFD-Reinf and eSocial modules. With the validity of DCTFWeb, social security contributions and those due to third parties will be collected through the DARF collection document, which will replace the current collection guide (GPS).

[4] Decree 8373/14 established the Digital Recording System for Tax, Social Security and Labor Obligations (eSocial). Through this system, employers will now communicate to the Government, in a unified manner, information related to employees, such as employment relationships, social security contributions, payroll, reports of work accidents, advance notice, tax records and information on the FGTS.

[5] “Art. 76. (…)

XVII – the contributions referred to in articles 2 and 3 of Law No. 11,457 of 2007, in the event that the compensation referred to in Section I of this Chapter is made by a taxpayer who does not use eSocial to calculate said contributions;

XIX – the debt of contributions referred to in articles 2 and 3 of Law No. 11,457 of 2007:

a) relating to the assessment period prior to the use of eSocial to assess the aforementioned contributions; and

b) relating to a calculation period subsequent to the use of eSocial with credit for other taxes administered by the RFB relating to a calculation period prior to the use of eSocial to calculate the aforementioned contributions; or

XX – the debt of other taxes administered by the RFB:

a) relating to the assessment period prior to the use of eSocial to assess the contributions referred to in articles 2 and 3 of Law No. 11,457 of 2007, with credit relating to said contributions; and

b) with credit for the contributions referred to in articles 2 and 3 of Law No. 11,457 of 2007, relating to the assessment period prior to the use of eSocial to assess said contributions.

Sole paragraph. The tax procedure referred to in item XIV of the caput is restricted to the tax procedure distributed by means of the Tax Procedure Distribution Term (TDPF).” (NR)