New Brazilian Reorganization and Bankruptcy Law: Legislative Branch re-establishes special tax rules for companies undergoing judicial reorganization
Tax provisions originally set forth in Bill No. 4,458/2020 (which resulted in the enactment of Law No. 14,112/2020 – New Reorganization and Bankruptcy Law) and which had been vetoed by the President of the Republic at the time of sanction, were reviewed by the Legislative Branch.
Of the 14 (fourteen) vetoes made at the time, 12 (twelve) were rejected and reintroduced into legislation by the Legislative Branch, among which the following apply to tax matters:
- Art. 6-B of Law No. 11,101/2005, added by art. 2 of Bill 4,458/2020: said provision allows the offset with capital gains resulting from judicial sales of assets or rights of companies under judicial reorganization, of full tax losses carry forwards and CSLL negative basis in an unlimited manner (without the limit of 30% of taxable income);
- Art. 50-A of Law No. 11,101/2005, added by art. 2 of Bill 4,458/2020: in the event of renegotiation of corporate debts within a judicial reorganization process, with debts subject or not to the referred process, and, for purposes of recognizing the effects on financial statements, said provision provides
- (i) non-taxation of PIS and COFINS on debtor’s income arising from discount achieved in the renegotiation (i.e., COD income);
- (ii) the possibility of offsetting COD income with full tax loss carry forwards and CSLL negative basis in an unlimited manner (without the limit of 30% of taxable income) from IRPJ and CSLL tax basis;
- (iii) deduction of expenses related to obligations incurred in the judicial recovery plan from the IRPJ and CSLL tax basis..
With the rejection of vetoes to the provisions indicated above, the Bill returns to the President of the Republic for enactment, completing the legislative process. We expect that, in the coming days, there will be the definitive introduction of the aforementioned provisions which will represent a refinement of the national legal system and, more specifically, of judicial the recovery process.
Our tax practice is available for any clarification required and to assist in respect of the measures above.