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Legal Update

Law No. 13,496 / 2017 - Special Tax Regularization Program (“PERT”)

26 October 2017
Tauil & Chequer Legal Update

Resulting from the conversion of the Provisional Measure ("MP") No. 783/2017, Law No. 13.496/2017 (“New Law”) was published on October 25, and amends some of the conditions set out in the Special Tax Regularization Program (Programa Especial de Regularização Tributária - "PERT").

Pursuant to the new Law, individuals and legal entities can include, until 10/31/2017, debts payable up to 04/30/2017 in the PERT. The PERT still has different conditions for debts with the Brazilian Federal Revenue Service ("RFB") and with the Attorney-General of the National Treasury ("PGFN").

However, unlike MP No. 783/2017, the new Law allows taxpayers with consolidated debts registered for judicial collection, which do not exceed BRL 15,000,000.00, to not only offer real estate as payment in kind, but also to offset such debts with tax losses, as well as with other federal tax credits.

In addition, the percentage of reduction of fines and legal charges, including attorney's fees, were increased in almost all situations. A new mode of installment payment was also established within the framework of the RFB, which concerns the possibility of a minimum cash payment of 24% of the consolidated debt in 24 installments and the balance to be paid through the offset of tax losses and other federal tax credits.

The inclusion of debts that are under administrative or judicial discussion is still conditioned on the prior withdrawal of defenses, administrative appeals and lawsuits. However, unlike MP No. 783/2017, the new Law expressly stipulates that the withdrawal of lawsuits does not subject the defaulter to the payment of the attorney’s fees.

Another relevant change introduced by the new Law is related to the possibility for the taxpayer to file a defense, under the terms of Decree No. 70,235/1972, against the exclusion of the PERT should this occur for any reason.

Based on the provisions of the new Law, the main characteristics of the PERT can be summarized as follows:

  1. Debts with the RFB: 
  1. Total debt, without reductions, exceeding BRL 15,000,000.00:
  • Payment of 20% of the debt in cash (in one payment or in 5 installments, payable from August to December 2017), and the residual balance to be settled using tax losses and/or other federal tax credits, with the possibility of payment, in cash, of any residual balance in up to 60 installments, payable as of the month following the payment in cash;
  • Payments in up to 120 installments, as follows: from the 1st to the 36th installment, only 1.5% of the amount of the debt will be paid, and the residual balance (from the 37th installment onwards) will be paid in 84 monthly and successive installments;
  • Payment of 20% of the debt in cash (in one payment or in 5 installments, due from August to December 2017) and the residual balance to be settled as follows:
    1.  In full, in January 2018, in a single installment, with 90% reduction of the default interest (Selic) and 70% reduction of fines;
    2. In up to 145 installments, starting in January 2018, with 80% reduction of the default interest (Selic) and 50% reduction of fines;
    3. In up to 175 installments, starting in January 2018, with a reduction of 50% of the default interest (Selic) and 25% reduction of fines, with each installment calculated based on the amount corresponding to 1% of the gross revenue of the legal entity in relation to the month immediately preceding the payment date, not less than 1/175th of the total consolidated debt;
  • Payment in cash of at least 24% of the consolidated debt, in 24 monthly and successive installments, and settlement of the residual balance with the offset of tax losses and/or other federal tax credits.
  1. Total debt, without reduction, equal to or less than BRL 15,000,000.00:
  • Reduction of the payment in cash provided for in each mode of payment from  5% to 20% of the consolidated debt (in cash or in 5 installments, payable from August to December 2017);
  • After applying the reductions in the fine and interest as provided for in each type of installment plan, there is the possibility of settling the residual balance with the offset of tax losses and/or other federal tax credits;
  • If the offset of credits is not sufficient to settle all the consolidate debts, the residual balance can be settled by the number of installments provided for in the type of installment plan adopted.
  1. Debts with PGFN: 
  1. Total debt, without reductions, exceeding BRL 15,000,000.00:
  • Payments in up to 120 installments, as follows: from the 1st to the 36th installment, only 1.5% of the amount of the debt will be paid, and the residual balance (from the 37th installment onwards) will be paid in 84 monthly and successive installments;
  • Payment of 20% of the debt in cash (in one payment or in 5 installments, payable from August to December 2017), and the residual balance to be settled as follows:
    1. In full, in January 2018, in a single installment, with 90% reduction of the  default interest (Selic), 70% reduction of fines and 100% reduction of court charges and attorney’s fees;
    2. In up to 145 installments, starting in January 2018, with 80% reduction of the  default interest (Selic), 50% reduction of fines and 100% of court charges and attorney’s fees;
    3. In up to 175 installments, starting in January 2018, with a reduction of 50% of the default interest (Selic), 25% of reduction of fines and 100% reduction of court charges and attorney’s fees, with each installment calculated based on the amount corresponding to 1% of the gross revenue of the legal entity in relation to the month immediately preceding the payment date, not less than 1/175th of the total consolidated debt;
  1. Total debt, without reduction, equal to or less than BRL 15,000,000.00:
  • Reduction of the payment in cash provided for each mode of payment from  5% to 20% of the consolidated debt (in cash or in 5 installments, payable from August to December 2017);
  • After applying the reductions in the fine and interest as provided for in each type of installment plan, there is the possibility of settling the residual balance with the offset of tax losses and/or other federal tax credits;
  • If the offset of credits is not sufficient to settle all the consolidate debts, the residual balance can be settled by the number of installments provided for in the type of installment plan adopted;

After applying the reductions in the fine and interest as provided for in each type of installment plan, there is the possibility of settling the residual balance by offering real estate as payment in kind.

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Observations in this update about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.

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