The controversy surrounding possible tax effects caused by the accounting changes introduced by Law 11,638 are expected to end. In September, Receita Federal (Brazilian fiscal authority) finalized a proposal that will ensure fiscal neutrality for companies subject to the new accounting procedures. If approved as written by the Receita Federal, the Medida Provisória – MP (an isolated act of the president, that is not submitted to Congress) will install the Transitional Tax Regime for calculation of actual profit, applicable optionally for the year 2008 and mandatorily for the fiscal year 2009. Until closing of this edition, it was expected that the MP would be published in the DOU (Official Diary of the Brazilian Union) in the first half of October.

The text of the draft is clear. The alterations promoted by the new Law 11,638 that modifies the criteria for acknowledgment of computed revenues, costs and expenses will not be applied for purposes of calculating a legal entity’s actual profit, where the criteria in force as of December 31st of the previous year should be applied. By concentrating its provisions on the theme in the MP, however, Receita Federal decided to revoke paragraph 7 of article 177. The paragraph explicitly guaranteed fiscal neutrality as a result of the new accounting procedures. Now, zero tax impact is ensured only by the MP, a device with a limited term of validity.

In an e-mail response, Carlos Alberto Barreto, Receita Federal joint secretary, refuted the hypothesis that removing paragraph 7 would bring some legal insecurity to taxpayers. In his opinion, the MP is enough to remove uncertainties and clearly establish the tributary legislation’s application. The established deadline covers the years 2008 and 2009, but can be automatically postponed until the fiscal regulation is harmonized with the new accounting rules. “It makes no sense to have two separate regulations at the same time, for the same purpose”, says Barreto, referring to the law’s device and to the MP.

Another novelty was the end of the Accounting Profit Calculation Book (Laluc), created by Law 11,638 for companies to input the adjustments caused by the changes in accounting. Now, the taxpayer will be spared that job, as all of the adjustments will be done in the Actual Profit Calculation Book (Lalur). Hence, there won’t be two separate accountings, one for corporate and the other for fiscal purposes, as was expected. “We must eagerly applaud the Receita Federal´s work”, comments Eliseu Martins, member of the Accounting Pronouncements Committee (CPC). In September, Martins was appointed to the CVM board of directors by the Ministry of Finance. He will replace Durval Soledade, serving until the end of 2009.

The MP also ratified its understanding on the fiscal treatment of donations and subventions and of debenture issuance premiums. The manner of collection will not be altered, as was cogitated as soon as the draft began to circulate in the market.