Why is there insecurity in the analysis and application of laws in Brazil? Why does the position of the Federal Revenue Service differ so much in the application of tax rules, even when the rules are clear?
Recently, the Federal Revenue Service published Consultation Solution No. 7, of March 4, 2021, stating that the presumed basis applicable under the presmued profit regime for the for companies that explore real estate activity is 8% for IRPJ (income tax) and 12% for CSLL (social contribution on profit). Why do we celebrate such an obvious and coherent position? That’s the rule, isn’t it? Yes. The rule for the presumed basis under the the presmued profit regime for this activity has always been 8% for IRPJ and 12% for CSLL.
The obvious must always be said and confirmed in tax law. The Federal Revenue Service did this in Consultation Solution No. 7, after years of stating that the rule was only valid for real estate registered in the accounting books as inventory. It said that real estate registered as a fixed asset should be treated and taxed differently. We must cheer and hope for more coherent positions: the nature and essence of the real estate activity is dynamic and the accounting registration is merely a control.
Let’s go to the case at hand.
The rule: every real estate company that opted for the presumed profit regime should calculate the presumed basis at the rate of 8% for IRPJ and 12% for CSLL.
The controversy: In previous positions, the Federal Revenue Service stated that this rule only applied to real estate registered in the accounting books as inventory. Real estate assets registered as fixed assets would not take advantage of this rule and would be taxed differently (in practical terms, they would have a tax burden of 34% on any gain). In other words, the Federal Revenue Service brought insecurity to an obvious rule simply because of the accounting of the assets.
The obvious: every real estate company moves real estate through inventory and fixed assets accounts all the time. It is part of its activity to buy, sell and lease these assets. And this movement occurs due to market demands. For example. A real estate that is being leased (technically, it must be registered as an immovable asset) can receive a proposal for sale (technically, it must be transferred from the immovable asset to the inventory before the sale). Also, a real estate can be prepared for a sale although receive a proposal for a lease (technically, the registration in the inventory should change to that of immovable asset). The market is dynamic. Most importantly, the real estate company continues to explore real estate activity. And the rule of the presumed basis must always be the same: 8% for IRPJ and 12% for CSLL.
The answer: Consultation Solution 7/2021 is accurate and says the obvious. “This form of taxation is maintained even if the properties sold were previously used for lease to third parties, provided such activity constitutes the object of the legal entity, in which case the resulting revenues comprise up the operating profit and the gross revenue of the legal entity“. This is a clear statement that is coherent with the rule. A real estate company buys, sells and leases real estate. The accounting is a mere consequence. Now, the Federal Revenue Service validates this dynamism. It is the obvious being validated.
It goes further: it also states that “the bookkeeping of transactions by the taxpayer is not something that has the power to determine, by itself, the norm of tax levy“. This is an important truth that must be repeated. Accounting bookkeeping is an excellent control tool, but not the guideline. That is the role of the tax rule. Tax and administrative reforms are important and forthcoming. Nevertheless, what will make the most positive difference will be more coherent positions. There are excellent professionals in the public and private sector. Let us all be more consistent and reaffirm the obvious. For more coherent positions.
By Alamy Candido, partner at Candido Martins Advogados.