Circular Letter No. 1/2023/CVM/SNC/SEP

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
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CIRCULAR LETTER No. 1/2023/CVM/SNC/SEP
Rio de Janeiro, February 13, 2023.
Subject: Guidelines regarding relevant aspects to be observed when preparing and publishing Accounting Statements for the fiscal year ended 12.31.2022, in light of a Supreme Federal Court decision on res judicata in tax matters.

Dear Director of Investor Relations and Dear Independent Auditor,

The Circular Letters issued jointly by the Superintendence of Accounting Standards and Auditing - SNC and the Superintendence of Corporate Relations – SEP aim to guide the preparation of accounting statements and have been considered an effective instrument by the CVM's technical areas to safeguard the quality of information disseminated in the market.

In this sense, considering the decision taken last Wednesday, February 08, 2023, by the Plenary of the Supreme Federal Court (STF), widely reported[1], the CVM's technical areas consider it extremely relevant to alert Directors of Investor Relations of open companies and their auditors regarding normative provisions that must be observed when preparing their accounting statements for December 31, 2022, or when voluntarily restating them, in case they have already been disclosed to the market.

For information purposes, and to ensure there is no doubt regarding the impacts and scope of the STF decision on the accounting statements for December 31, 2022, it is appropriate to reproduce some passages from the coverage on the supreme court's website[2]:

“In a decision taken last Wednesday (8th), by unanimous vote, the Plenary of the Supreme Federal Court (STF) considered that a final decision, the so-called “res judicata”, regarding taxes collected in a continuous manner, loses its effects if the Court rules in the opposite sense. This is because, according to legislation and jurisprudence, a decision, even if final and unappealable, produces its effects as long as the factual and legal framework that justified it persists. If there is a change, the effects of the previous decision may cease to be produced. (...) Which types of taxes did the STF rule on? The decision that established the loss of effects of a final judgment (res judicata, without possibility of appeal), if the Supreme Court takes a contrary decision, was unanimous and applies only to taxes collected in a continuous manner, that is, those whose collection is renewed periodically, such as the Social Contribution on Net Profit (CSLL). In the case of taxes collected only once, such as, for example, the ITBI, which applies to the sale of a specific property, if there is a final judgment, since the relationship is unique, this right remains, even after a contrary decision by the STF on the subject. (...) Why did the STF reverse “res judicata” in these cases? The minister emphasized that res judicata – the acquired right from a judicial decision without possibility of appeal – applies as long as the same factual and legal conditions remain. However, when the Supreme Court decides that a tax is due, from that moment on, everyone must pay. Barroso highlighted the importance of a certain tax applying to all market actors; otherwise, those who have obtained an old res judicata have a competitive advantage over competitors, due to tax inequality. (...) Will there be losses for the companies involved? According to Minister Barroso, since the STF took the decision in 2007, no company can say it was caught by surprise. For him, the STF’s understanding does not create legal insecurity, because those who stopped paying after the Court validated the collection and did not provision resources for this purpose made a “bet”. (...) Will the understanding apply to all processes? The decision was taken in the context of general repercussion. Therefore, the decision will apply to all similar cases that are running in other instances.

In the case of other taxes that may be considered constitutional, from when will companies have to pay the amounts?
According to the ministers’ understanding, if the tax is imposed and considered constitutional, it will only be collected in the following year. If it is a contribution, three months after the decision.
Minister Barroso also clarified that in the case of CSLL, due to an unequivocal previous decision by the Supreme Court affirming that the tax was due, the Court understood that it should not perform the so-called modulation and determined the collection of past values, respecting the statute of limitations. If there is another tax, in a distinct factual or legal situation, the STF may decide whether there will be modulation or not. (...)” (all our highlights)

As a result of the aforementioned STF decision, the technical areas understand that, without prejudice to the application of CVM Resolution No. 44, which must be observed, the pronouncements of CPC 24 and CPC 25 must be observed when preparing the Accounting Statements for December 31, 2022, particularly the provisions reproduced below:

“CPC 24.9. The following are examples of events subsequent to the accounting period to which the financial statements refer that require the entity to adjust the values recognized in its statements or recognize items that had not been previously recognized:
(a) decision or payment in a judicial process after the end of the accounting period to which the financial statements refer, confirming that the entity already had a present obligation at the end of that accounting period. The entity must adjust any provision related to the process previously recognized in accordance with CPC 25 – Provisions, Contingent Liabilities and Contingent Assets or register a new provision. The entity does not merely disclose a contingent liability because the decision provides additional evidence that would be considered in accordance with item 16 of CPC 25; (...)” (our highlight)

“CPC 25.16. In almost all cases it will be clear whether a past event gave rise to a present obligation. In rare cases – such as in a judicial process, for example –, it may be debated both whether certain events occurred and whether these events resulted in a present obligation. In this case, the entity must determine if the present obligation exists at the balance sheet date by considering all available evidence including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the balance sheet date. Based on such evidence:
(a) when it is more likely than not that a present obligation exists at the balance sheet date, the entity must recognize the provision (if the recognition criteria are met); and (b) when it is more likely than not that no present obligation exists at the balance sheet date, the entity discloses a contingent liability, unless the possibility of an outflow of resources incorporating economic benefits is remote (see item 86)” (our highlight)

Finally, it is the understanding of the technical areas that robust disclosure of the event treated here regarding its impact on the financial statements and on the allocation of the period's result is necessary.

Sincerely,

Original signed by
OSVALDO ZANETTI FAVERO JUNIOR
Acting Superintendent of Accounting Standards and Auditing

Original signed by
FERNANDO SOARES VIEIRA
Superintendent of Corporate Relations

[1] https://www.conjur.com.br/2023-fev-08/stf-permite-anulacao-decisao-tributaria-definitiva-modulacao https://valor.globo.com/legislacao/noticia/2023/02/08/stf-quebra-decises-judiciais-definitivas.ghtml https://www.poder360.com.br/justica/stf-decide-que-quebra-de-decisao-tributaria-e-automatica/ https://www.infomoney.com.br/politica/posicao-do-stf-sobre-quebra-de-decisao-tributaria-gera-impacto-bilionario-para-empresas-e-traz-inseguranca-juridica-dizem-especialistas/ https://www.jota.info/opiniao-e-analise/artigos/imposto-ioio-decisao-do-stf-sobre-coisa-julgada-traz-incertezas-as-empresas-10022023

[2] https://portal.stf.jus.br/noticias/verNoticiaDetalhe.asp?idConteudo=502140&ori=1

Document electronically signed by Osvaldo Zanetti Favero Junior, Acting Superintendent, on 02/13/2023, at 19:26, based on art. 6 of Decree No. 8.539, of October 8, 2015.
Document electronically signed by Fernando Soares Vieira, Superintendent, on 02/13/2023, at 19:27, based on art. 6 of Decree No. 8.539, of October 8, 2015.

The authenticity of the document can be verified on the site https://super.cvm.gov.br/conferir_autenticidade, by informing the verification code 1719776 and the CRC code BD2DEB8C.
This document's authenticity can be verified by accessing https://super.cvm.gov.br/conferir_autenticidade, and typing the "Verification Code" 1719776 and the "CRC Code" BD2DEB8C.
Reference: Process No. 19957.001473/2023-58 SEI Document No. 1719776