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Brazil: Guidance for determining, calculating social contributions (PIS and COFINS) and indirect taxes

Brazil: Guidance for calculating social contributions

Guidance published on 15 October 2019 in the official gazette, consolidates the rules for certain social contributions.


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The guidance—Instrução Normativa No. 1.911/2019 or IN No. 1.911/19—concerns the rules with regard to the social integrity program (PIS)* and social security financing (COFINS)* as well as PIS-Import and COFINS-Import.

*PIS (programa de integração social) refers to an employees’ profit participation program and COFINS (contribuição para o financiamento da seguridade social) refers to a social contribution program for social security financing.

In addition to consolidating the numerous rules that regulate PIS and COFINS regimes, IN No. 1.911/19 aims to gather numerous positions adopted by the Brazilian tax authority (RFB) previously issued as formal consultations and normative opinions. IN No. 1.911/19 is effective on the date of its publication, 15 October 2019.

“Input” redefined

Article 765 of IN No. 1.911/19 withdraws or repeals over 50 normative instructions. With this action, the RFB redefined certain relevant items. For example, the concept of “input”—as previously defined and provided by Normative Instructions No. 247/02 and No. 404/04—is now determined by Article 172 of IN No. 1.911/19.

From the taxpayer's standpoint, the new definition of “input”—which takes into consideration the criteria of essentiality and relevance—is generally taxpayer-favorable and is generally in line with the position of Brazil’s Supreme Court as announced in the judgment of Special Appeal No. 1,221,170/PR and in the RFB’s Normative Opinion No. 05/2018.

For instance, over the past 17 years since the creation of the non-cumulative regime, there has been disagreement about whether certain items are to be regarded as “inputs.” The new normative instruction (§1º of Article 172) clarifies certain items are now clearly defined as “inputs” including:

  • Goods and services, including those used after the manufacturing process, that have their use imposed by law
  • Fuels and lubricants used in machinery, equipment or vehicles
  • Transport services of products in preparation performed in or between establishments of the legal entity
  • Personal protective equipment

On the other hand, certain restrictions that were already applied and adopted by the RFB through formal consultations are now formally regulated. These restrictions apply with regard to:

  • Packaging used in the transport of finished products
  • Goods and services applied in the development phase of intangible assets that are not yet completed or that are concluded and exploited in areas other than the production or manufacture of goods and the provision of services (for instance, research and development)
  • Transport services of finished goods performed in or between establishments of the legal entity
  • Goods and services used, applied or consumed in commercial operations

KPMG observation

The restrictions imposed under IN No. 1.911/19 need to be carefully analyzed along with administrative guidance and judicial positions on this subject—specifically Brazil’s Supreme Court decision with regard to the concept of “input” related to relevance and essentiality. Tax professionals believe the restrictions provided by the new normative instruction must be considered on a case-by-case basis.

The withdrawal (repeal) of Normative Instruction No. 404/04—and in particular article 8th, §3, item II that clearly provided that ICMS (which is akin to Brazilian VAT) must be included in the cost of acquisition of goods and services for calculating the contributions’ credits—also must be considered given that a similar provision is not replicated in IN No. 1.911/19 (refer to Article 167). Tax professionals have interpreted that this rule was affected by the decision of Brazil’s Supreme Court in the Extraordinary Appeal No. 574,706/PR, in regard to the exclusion of the ICMS* in PIS and COFINS tax calculation basis.

*ICMS (imposto sobre Circulação de Mercadorias e Serviços) is a tax on the circulation of goods and transportation and communication services, and is deemed to be a state sales tax.

Regarding the effects of Brazil’s Supreme Court decision, in order to comply with the final court decisions, Article 27 of IN No. 1.911/19 expressly sets forth the exclusion of ICMS from the contributions’ calculation basis, in line with what was outlined by the RFB in what was considered to be controversial guidance, Formal Consultation No. 13/2018. Therefore, the ICMS values to be excluded from the calculation basis must be the amount effectively collected—not the amount described in the invoices. This may be another questionable matter: if, on one hand, for the purpose of calculating credits, ICMS does not integrate the acquisition cost (only the insurance, freight and IPI* when not recoverable); on the other hand, according to the normative instruction, ICMS to be excluded from the contributions’ calculation basis must be the effectively collected amount.

*IPI (imposto sobre produtos industrializados) is tax on industrialized goods, and a federal excise tax.

Also, the fact that Article 27 expressly mentions that the form of the calculation applies in instances of enforcement of final court decisions could lead to an interpretation that taxpayers that have not yet reached a final court decision or have not filed a lawsuit with regard to the issue will not be able to exclude ICMS from their contributions’ calculation basis. Additionally, it demonstrates RFB’s position regarding the effects of anticipated soon-to-be-issued decisions of Brazil’s Supreme Court when analyzing an amendment of judgment filed by the attorney’s office of the National Treasury.

Read an October 2019 report (Portuguese) prepared by the KPMG member firm in Brazil

For more information, contact a KPMG tax professional:

Murilo Rodrigues de Mello | +1 (305) 913-2781 |

Elson Eduardo Bueno | +55 (11) 3940-3281 

Maria Isabel Ferreira | +55 (11) 3940-2020 | 

Pedro Anders | +55 (11) 3940-3123 |

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