Brazil revives old tax code in latest setback for companies
SAO PAULO, Sept 18
SAO PAULO, Sept 18 (Reuters) - The Brazilian government revived corporate tax rules that were phased out about six years ago, the latest attempt by President Dilma Rousseff's administration to tighten oversight on large companies.
Receita Federal, the nation's tax agency, said late on Tuesday that it would require companies to present their statements breaking down dividend and interest on net equity payments, as well as changes in investment accounting under the so-called equity method. The changes will take effect in 2014.
The agency, which is nicknamed "The Lion" due to its tough tactics, said the move "should allow the agency to verify whether taxpayers are properly calculating their levies."
The decision may affect the way companies account for profits earned by their foreign subsidiaries, the cost and potential writedown of investments under the so-called equity method, or the calculation of goodwill in a merger that could potentially generate a tax shield in the future.
Under the equity method, investments are recorded at cost, adjusted by the amount corresponding to changes in a company's net profit and other items in the equity accounting line. Those changes are usually offset against profits or losses in a determined period and against dividends received.
The tax authority has been putting more pressure on companies that it either accuses of tax evasion or a deliberate effort to win exemptions. The crackdown comes as revenues at many companies are dwindling in a weak economy and as public spending surges at all levels of government.
In August, Itaú Unibanco Holding SA said it had been notified of a potential 18.7 billion real ($8.3 billion) tax claim stemming from the merger that created the bank, Brazil's largest by market value, five years ago.
According to Receita, Banco Itaú Holding Financeira SA's purchase of União de Bancos Brasileiros SA in 2008 should have been carried out differently, without generating the tax shelter it did.
Vale SA, the world's largest iron ore producer, and Swiss lender UBS AG are among other companies operating in Brazil that Receita has investigated for potential tax offenses in recent years.
The nation phased out the old corporate tax code in 2007 under then-President Luiz Inácio Lula da Silva to help fine-tune accounting practices and put them more in line with international financial reporting standards, or IFRS. In 2009, companies began to apply a transitional accounting code requiring them to calculate taxable income based on the 2007 guidelines, Receita said.
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