In its Answer to Tax Consultation No. 188/2015, published in the Official Gazette on September 14th, 2015, the Federal Revenue Office clarified the formalities and elements required for its classification as an investment subsidy.
While analyzing the tax sparing granted by Santa Catarina State in respect of the Brazilian Value-Added Tax (ICMS) under Section 15, paragraph 35, XI, Annex II, of Decree No. 2,870/2015 (Santa Catarina State Value-Added Tax Regulation), the Answer to the Tax Consultation establishes that the following requirements should be verified for its classification as an investment subsidy:
Therefore, the Answer to Tax Consultation concluded that the tax sparing granted by Santa Catarina State in respect of Brazilian Value-Added Tax was considered revenue instead, and is consequentially subject to taxation on account of IRPJ (Corporate Tax), CSLL (Social Contribution on Net Profits), PIS (Social Integration Program) and COFINS (Contribution to Fund Social Security).
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