On 11/13/2013, Provisional Measure No. 627/2013, enacted by the Brazilian Federal Revenue, which repeals the Transition Tax Regime (“RTT”) was republished in the Official Gazette.

This measure establishes the tax treatment to be imposed on the new Brazilian accounting rules, introduced by Laws 11,638/2007 and 11,941/2008, whose main goal was to integrate the BRGAAP with the international accounting rules (IFRS).

Long-awaited by taxpayers, the measure brings modifications to the ascertainment of Corporate Income Taxes (IRPJ and CSLL) in cases of goodwill on the acquisition of shareholdings in subsidiaries or associates, and treatment of goodwill on merger and acquisition operations. Among the changes made in the treatment of goodwill, it is worth highlighting the difference between the goodwill, surplus value and capital loss on a disposal of assets, and the gains from advantageous purchases. However, the possibility of amortizing the goodwill paid on the purchase of investments for tax purposes, with the observation of a minimum five-year term, was maintained, subject to new rules and requirements, which differ from those previously published in the sense that taxpayers may not deduct the goodwill from the calculation basis of income tax and social contribution as of the edition of new rules on the subject.

Among the modifications on ascertainment of Corporate Income Taxes (IRPJ and CSLL), are the adjustment to the fair valuation in the  investee;adjustment to present value; pre-operating or pre-industrial expenses and commercial leasing.

In accordance with the Provisional Measure, the taxpayer may choose to adopt the new rules for the calendar year 2014. However, for the calendar year 2015, the application of the rules will be mandatory, it no longer being possible to adopt the RTT.

Furthermore, the introduction of the Special Installment Regime, for the payment of IRPJ and CSLL liabilities should be noted, with reduction of fines and interest and the possibility of offsetting tax losses, the profits accrued by subsidiaries and affiliates located abroad and not taxed in Brazil, as well as PIS/PASEP and COFINS liabilities, due from financial institutions and insurance companiesby December 31, 2012.

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Founded in 2001, Tauil & Chequer Advogados is a full service law firm with approximately 90 lawyers and offices in Rio de Janeiro, São Paulo and Vitória. T&C represents local and international businesses on their domestic and cross-border activities and offers clients the full range of legal services including: corporate and M&A; debt and equity capital markets; banking and finance; employment and benefits; environmental; intellectual property; litigation and dispute resolution; restructuring, bankruptcy and insolvency; tax; and real estate. The firm has a particularly strong and longstanding presence in the energy, oil and gas and infrastructure industries as well as with pension and investment funds. In December 2009, T&C entered into an agreement to operate in association with Mayer Brown LLP and become “Tauil & Chequer Advogados in association with Mayer Brown LLP.”

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