Historically Brazil has always tried to strengthen and make internal economic growth by means of public policies focused on stimulation of certain sectors of the economy, as happened with the agriculture of coffee, cotton and sugar cane.
Although currently it is possible to verify a decrease of State participation in such sectors of economy, primarily destined to the private initiative, the Brazilian Federal Constitution determines in its article 2 that the Federative Republic has, as fundamental objectives:
(i) the construction of a free, fair and solidary society; (ii) to guarantee national development; (iii) to eradicate poverty and marginalization and to reduce social and regional differences and (iv) the promotion of the nations welfare, with no prejudice in relation to origin, race, sex, color, age and other forms of discrimination. Specifically with regard to State interference in the economy, Brazilian Federal Constitution establishes the principles of the reduction of social differences and the favored treatment to microenterprises.
In this sense, one can highlight as a big challenge of the current Brazilian Government the reduction of the social and income distribution gap of its population, as well as the promotion of greater economic development in the Northern and Northeastern regions in the Country.
In view of the challenges set forth, and taking into account the objectives stated in the constitutional text, it is possible to identify some activities that are supported by Brazilian Government, in most cases by means of tax exemption policies (fiscal incentives) as a way of encouraging specific sectors or activities that, without the existence of such support, would not be able to develop adequately.
Examples of such activities are the fine arts and culture in general, cinema and audiovisual production, business projects established in less favored regions and
projects of technological development in Brazil, which will be detailed below.
26.1. Cultural and artistic activities
The Brazilian Government supports cultural and artistic activities by granting several benefits, mainly focusing in fiscal incentives, allowing the decrease or discount in Income tax, Value-Added Tax (ICMS) and Service Tax (ISS).
With regard to the Income Tax, one can highlight Law no. 8.313/91, known as the Rouanet law. The referred law stimulates cultural projects that aim at the exhibition, use and public circulation of the cultural assets resulting therefrom. The benefit is prohibited to construction, products, events or others, destined or restricted to private circuits or collections. In addition, concerning legal entities, it should be noted that only legal entities taxed by the taxable income can use the fiscal incentives permitted by such law.
It is important to mention that the incentives created by this Law will only be granted to cultural projects that are made available, whenever technically possible, also in a format accessible to the disabled person, subject to the provisions of regulation.
Therefore, with the purpose of stimulating individuals and legal entities to provide funds to support cultural and artistic activities, the Rouanet law essentially establishes two fiscal benefits: (i) permission to deduct the amount of the funds destined to the above mentioned activities from the income tax calculation base; and (ii) permission to allocate part of the income tax due to support these activities.
It is important to mention that the maximum deduction allowed in the income tax of the supporter is limited to 4% of the income tax due by legal entities and 6% of the income tax due by individuals.
Normative Ruling No. 2/2019 established changes in the procedures for raising funds related to tax incentives, which apply only to projects that have not yet been ratified, and the main change is related to the maximum cap value, both by project or by proponent.
According to the new regulations, the maximum amount funded per project is limited to R$ 1,000,000.00 and each company can submit projects of R$ 10,000,000.00 max. For individuals, the limit that was previously R$ 1,500,000.00 was reduced to R$ 1,000,000.00.
These limits can be increased by 100% for projects carried out entirely in the North, Northeast and Midwest regions and 50% for projects in the Southern region and in the States of Minas Gerais and Espírito Santo.
The new regulation also sets forth a deadline for evaluating the incentivized project, which did was not foreseen by the previous legislation. According to the new Ruling, after completion of the project in digital format, the deadline for evaluation the results is one year, which can be postponed for another year.
In projects involving amounts higher than R$ 750,000.00, in the event of evidence of irregular application or misuse of public resources or when there is a complaint of irregularity, there will be a detailed financial analysis of the project. In other cases, the analysis will be done in a simplified way and based on the comparison of bank statements.
With the measures listed above, the new regulations aim to stimulate the decentralization of the application of resources encouraged in cultural projects and expand access to culture in the Country.
Activities such as the production and distribution of independent Brazilian cinematographic and audiovisual productions of long and short duration, as well as specific technical infrastructure projects for the production and exhibition of cinematographic and video-phonographic works, such as remodeling projects for
cinemas and remodeling projects and adaptation of real estate destined for the execution of technical services of image and sound, are granted incentives from Law no. 8.685/93 also called the Audiovisual Law.
The benefits provided for in the Audiovisual Law basically consist of: (i) deduction from the Income Tax due, with the right to a deduction of the total of the investment made as operating expenses, of all amounts invested in the production of cinematographic works and in the exhibition, distribution and technical infrastructure projects; (ii) deduction from Income Tax due of amounts related to sponsorship for production of works of independent cinematographic Brazilian productions and in exhibition, distribution and infrastructure audiovisual projects; (iii) deduction of 70% of the Income Tax due in the remittance of funds overseas to foreign producers, distributors or intermediaries, as income originated from exploration of foreign audiovisual works, as well as remuneration of rights related to transmission, by means of broadcasting of sounds and images and mass electronic communication services through membership, of audiovisual works or even events, even if being sports events.
It should be reminded that the incentive amounts cannot be used for the production of audiovisual works of advertising nature.
Cultural and artistic production is also broadly stimulated at State level by using the ICMS payable. Another thing that is worth of noting is the incentive to culture instituted by the State of São Paulo by the law no. 12.268/06 (amended by Law no. 16.381/2017) and Decree no. 50.857/06, that offers São Paulo State ICMS taxpayer the opportunity to sponsor the cultural and artistic production in São Paulo, financially supporting projects credentialed by the State Secretariat of Culture, by means of destination of part of the amount of the ICMS payable, respecting the maximum limit of 3%. Likewise, in the State of Rio de Janeiro, the referred State Law no. 1.954/92 aims at fostering the cultural production, granting benefits related to the ICMS.
However, the promotion to culture and to the artistic production in Brazil is not limited only to the Federal and State levels. The Cities also promote such activities by granting fiscal incentives related to the service tax (ISS).
26.2. Regional modernization enterprises and activities
Brazil is a country that has a history of development and modernization processes concentrated in a few regions of the country. The result of this is that currently there is a big gap between its regions, marked by economic and social differences.
Taking this reality into consideration, the Brazilian Government implemented several policies focused on the promotion of development of those regions, such as credit lines and financing with special conditions (mainly at the Economic and Social Development Bank – BNDES), as well as fiscal incentives to those private investments, productive activities and development initiatives installed in Brazilian regions which are considered less developed, which are: the states of the Northeastern Region (Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe and Bahia), from the Legal Amazon (Acre, Amapá, Amazonas, Mato Grosso, Pará, Rondônia, Roraima, Tocantins) and the northern region of the States of Minas Gerais and Espírito Santo.
The business projects located in these regions which may be granted credit facilities, as well as fiscal incentives are basically related to the area of (i) infrastructure (energy, telecommunications, transport, gas, basic sanitation and water supply); (ii) tourism, including real estate undertakings and convention centers; (iii) agricultural industry(irrigated agriculture, fruit farming, fish farming and aquiculture); (iv) mineral extractive industry; (v) transformation industry; (vi) electrical appliances, mechatronics, informatics, biotechnology, automotive industry and auto-parts and micro technology.
Among the fiscal incentives, the reduction of the income tax by 75% is worth a note,including an additional for implementation, expansion or diversification projects of enterprises in those regions, approved until the year 2023 (Law no. 13.799/2019 ), for the period of 10 years, as well as special conditions to perform the accelerated depreciation of assets.
There is also the right to reinvest 30% of the income tax due in modernization projects or complementation of equipment until the year 2023.
26.3. Export of assets
The promotion of the foreign sales increase to maximize the domestic surplus is an essential objective of the Brazilian Government and for over 20 years there have been public policies aiming at stimulating the country’s exports.
In this regard, the Brazilian Government makes available a broad network of financing to companies engaged in export activities, allowing financing with distinctive costs and terms and its projection in the international market of Brazilian products and services.
Finance credit facilities that are specific to the promotion of export of agricultural and livestock products are worth a note, as well as services related to engineering and civil construction, which have reached an outstanding position in the international scenario with infrastructure works and projects mainly in the Latin America.
It should also be highlighted, among others, the constitutional provision about the immunity of the Value-Added Tax – ICMS and, of Excise Tax – IPI, in transactions that are destined overseas industrialized product, as well as the non assessment, as per provision of the infra-constitutional, for primary and semi-elaborated products remitted overseas.
The revenues originating from exports are immune to social contribution to PIS (Social Integration Program) and exempt from Social Contribution for the Financing of Social Security – COFINS. There is also the possibility of legal debate referring to the revenues originating from the export of the calculation base of Social Contribution on Net Income – CSLL.
The exporting companies are also entitled to the maintenance of Excise Tax (IPI) and Value-Added Tax (ICMS) fiscal credits generated due to the acquisition of raw material,intermediary products and materials acquired in the domestic market and indemnity of PIS and COFINS value paid at the purchasing act in the domestic market relative to raw materials used for the production of exported product.
The exports of services abroad are also immune to the tax levied on Services of any nature – (Service Tax) ISS, except the services performed in Brazil whose result is verified here, even if the payment for the performance of the services is made by a resident abroad.
Finally, the companies established in the so-called “Export Processing Zones – ZPE” are considered exempt from income tax levied on remittance and payments made, at anytitle, for residents and domiciled individuals abroad.
The ZPEs are industrial districts which have been created for the establishment of companies essentially focused on the foreign market that operate under a tax, exchange and administrative regime that is different from the other companies in the country and that obtains in the foreign market at least 80% of their revenues.
Only companies that are focused on the production of goods to be traded with foreign countries and whose projects show generation of exports effectively additional to the ones performed by other companies outside it and those which contribute for the economic, industrial and social development of the country may be installed in the ZPE zones.
26.4 – Manaus Free Trade Zone
The Federal Supreme Court decided that companies from all over Brazil may take IPI (Excise Tax) tax credits when buying exempted inputs from the Manaus Free Trade Zone.
The Ministers firstly judged the issue in RE 596.614 and then replicated the result in RE 592.891, with general acknowledged repercussion, stating the thesis: “There is a right to credit IPI for the input of raw materials and packaging material purchased from the Manaus Free Trade Zone under the exemption regime, considering the provision of regional incentives, foreseen in article 43, paragraph 2, III, of the Federal Constitution, combined with article 40 of the ADCT.
Besides the IPI exemption, companies located in Manaus benefit from other tax benefits, such as differentiated rates of PIS and Cofins, refund of 90.25% of ICMS, discount of 75% in IRPJ, reduction of Import Tax on import of inputs and IPTU discounts.
Authors: Vanessa Inhasz Cardoso and Daniela Francine de Almeida Moreira
De Vivo, Whitaker e Castro Advogados
Rua Leopoldo Couto de Magalhães Jr., 758
9º e 10º andares – Itaim Bibi
04542-001 São Paulo – SP
Tel.: (11) 3048 3266
E-mail: [email protected]