By Guilherme Martins and João Pedro Riccioppo Cerqueira Gimenes, with the collaboration of Pedro Antônio GM Buzas

Amid subsequent changes on the matter led by the Ministry of Finance, we see the publication this Thursday (08/31) of Provisional Measure (MP) No. 1,185/2023, which substantially alters the rules regarding state tax incentives and their use by taxpayers, if approved by the legislature.

The main new feature concerns the inclusion of investment subsidies, a type of tax benefit granted by the States, in the basis for the incidence of Income Tax (“IRPJ”), PIS and COFINS, a practice previously prohibited by law.

The IRPJ amounts will generate credit and can be offset later, but the PIS/COFINS and CSLL charges jump from non-incidence to rates of 9.25% and 9%, respectively.
What we see, if the changes contained in the MP come into force, is a legislative shift not only in relation to the new incidence of those federal taxes, which directly increases the tax burden borne by taxpayers, but also regarding new provisions that regulate the right to credit, which indirectly increase the tax burden.

The right to the aforementioned IRPJ credit may only be used after the effective implementation or expansion of the project that gave rise to the tax incentive, so that the taxpayer may be granted the benefit at one point, but will only be able to use it upon completion of the project, which may occur much later.

Furthermore, the MP also innovates by establishing that in order to receive the right to the benefit, the taxpayer must file a request with the Federal Revenue Service and prove that it was used for investments.

By repealing Article 30 of Law No. 12,973/2014, it also intends to end legal discussions on whether subsidies for financing purposes – for tax purposes, from the IRS's perspective, are different from the first ones – are included or not in the exemption from these federal taxes. Now, under the terms of the MP, they will be fully taxed, without the right to credit.

This last topic may stir arguments regarding the unconstitutionality of the Measure, which have already been raised by taxpayers dealing with the same matter, in the context of the Union being prohibited from taxing tax incentives given by the States to taxpayers.

Our team will continue to closely monitor developments on this topic and is available to provide any clarifications.