The Accounting Pronouncements Committee (CPC), the Federal Accounting Council (CFC) and the Brazilian Securities and Exchange Commission (CVM) have approved, with effect from January 1 of this year, Technical Interpretation ICPC 22 – Uncertainty about Tax Treatment on Profit.
The interpretation mirrors the understanding published by the Interpretations Committee (IFRIC 23) of the International Financial Reporting Standards Foundation (IFRS), a non-profit organization of public interest. The IFRS was created to develop a single set of high-quality, globally accepted accounting standards – IFRS Standards – to clarify how companies must reflect the effects of uncertainty over the treatment of income tax in their financial statements.
The new technical interpretation published by the accounting bodies submits the tax planning adopted by companies to the rules of recognition and measurement of assets and liabilities set forth in CPC 32 (Taxes on Profit), when there is uncertainty as to the acceptance of such measures by the tax authorities, in application of the tax legislation.
According to the rules, the entity must consider the probability that the tax authority will accept the tax treatment of income tax – in this case, the interpretation only deals with IRPJ and CSLL – and determine the taxable profit (tax loss), tax basis, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned or reflect the effect of uncertainty in determining these bases.
The judgment is important for the definition of the necessity of disclosure or not of the reflections of the uncertainties identified in the adopted tax planning system. In other words, an analysis that leads to the high probability of non-acceptance by the tax authorities of the interpretation or planning adopted by the entity should be reflected in the entity’s accounting records insofar as it represents a probable outflow of resources.
This interpretation of IFRS arises from the lack of specificity, very often existing in tax legislation, which allows a broad approach and interpretation by both taxpayers and tax authorities on tax treatments and plans that may or may not be adopted by entities.
The legal and tax insecurity – discussed in ICPC 22 -, due to legal gaps certainly damage both sides of the issue, the Treasury and the taxpayers, and is one of the main reasons for the Tax Reform that has been under negotiation in the National Congress for years.