This is one of the measures seeking new sources to offset payroll tax exemptions.

The recent Provisional Measure 1,227 sets new parameters for enjoying tax benefits, delegates authority to adjudicate Rural Land Tax (“ITR”) cases and imposes significant limitations on the compensation of tax credits related to “PIS/Pasep” and “Cofins” (Social Integration Program and Social Security Financing Contribution).

To offset payroll tax exemptions, the Ministry of Finance aims to raise up to R$ 29.2 billion in 2024 by prohibiting the reimbursement of presumed PIS/Cofins credits and restricting the compensation of PIS/Cofins credits with other taxes or contributions administered by the Federal Revenue Service. In summary:

• Changes to PIS and Cofins Tax Credit Compensation: PIS/Cofins credits, which could previously be reimbursed or used to offset other taxes or contributions administered by the Federal Revenue Service, will now only be reimbursed or used to offset their own contributions;

• Revocation of Reimbursement and Compensation of Presumed PIS and Cofins Credits: The ability to reimburse and compensate presumed PIS and Cofins credits with other taxes or contributions administered by the Federal Revenue Service will be revoked;

• Mandatory Electronic Declaration of Tax Benefits: Companies must electronically declare to the Federal Revenue Service any incentives, exemptions, benefits, or tax immunities they enjoy. Details regarding benefits, deadlines, and conditions will be provided later by the Special Secretariat of the Federal Revenue of Brazil. Failure to submit or late submission will result in a fine of 0.5% to 1.5% of the gross revenue for the period, depending on the amount calculated;

• Municipal Authority Over Rural Land Tax (ITR): Municipalities that oversee and collect Rural Land Tax (ITR) can adjudicate the related administrative process and must comply with regulatory and interpretative acts issued by the Special Secretariat of the Federal Revenue of Brazil.