Circular No. 2746 — Establishes procedures for the recognition and accounting recording of tax credits

CIRCULAR N. 002746

Establishes procedures for the recognition and for the accounting recording of tax credits.

THE COLLEGIATE BOARD OF THE CENTRAL BANK OF BRAZIL, in a session held on 03.19.97, based on art. 4, item XII, of Law No. 4,595, of 12.31.64, by competence delegated by the National Monetary Council, by act of 07.19.78,

D E C I D E D:

Art. 1 The accounting recording of tax credits for income tax and social contribution arising from tax loss and temporary differences may be carried out by financial institutions and other institutions authorized to operate by the Central Bank of Brazil and by consortium administrators, provided that one of the following conditions is satisfied:

I - the loss is caused by an identified, unusual reason, and whose probability of recurrence is remote;

II - there is an expectation of generating future positive results, in subsequent periods, with the consequent generation of obligations with taxes and contributions that allow the realization of the tax credit, duly proven in a technical study;

III - there exists an obligation with taxes and contributions, recorded in liabilities, up to the limit of the value and corresponding to the same realization period, that enables the offsetting of the tax credit.

Paragraph 1 Expenses appropriated in the fiscal year and not yet deductible for income tax and social contribution purposes are characterized as temporary differences, but whose future exclusion or offsetting, for purposes of determining taxable income, is explicitly established or authorized by tax legislation.

Paragraph 2 The criteria adopted and the origin of the tax credits must be disclosed in an explanatory note to the financial statements, as well as the effects quantified in relation to the equity situation and the result.

Art. 2 The tax credit must be recorded under the heading TAX CREDITS - INCOME TAX AND SOCIAL CONTRIBUTION, code 1.8.8.25.00-2, of the Accounting Plan for Institutions of the National Financial System - COSIF, against the headings INCOME TAX, code 8.9.4.10.00-6, and SOCIAL CONTRIBUTION, code 8.9.4.20.00-3.

Sole paragraph. When provided for in legislation and there is compatibility of terms in the forecast of realization and enforceability, the asset and liability amounts referring to tax credits and obligations must be offset.

Art. 3 The expectation of utilization of the tax credit, already recorded, must be carefully analyzed at least when preparing the semi-annual and annual balance sheets, and it is prohibited to maintain the asset record when:

I - at least one of the conditions provided for in art. 1 is not satisfied;

II - a tax loss is determined in the last three fiscal years, including the reference fiscal year;

III - the available evidence indicates that its realization is remote.

Sole paragraph. The adjustment of the asset balance to the amount corresponding to the real possibilities of realization must be made, by reversing the entries referred to in the previous article.

Art. 4 For purposes of determining the value of the tax credit, the rates in force on the base date of the preparation of the financial statements must be used.

Paragraph 1 In the case of alteration of the tax legislation, the new criteria and rates must be adopted in the preparation of the trial balances and balance sheets.

Paragraph 2 Any alteration made in the tax legislation must have its effects immediately recognized, with the corresponding adjustment of the tax credits in the result for the period, in the form of art. 2 or the sole paragraph of the previous article, as the case may be.

Art. 5 The independent auditor, in its reports prepared in the form of Resolution No. 2,267, of 03.29.96, and Circular No. 2,676, of 04.10.96, must opine on the adequacy of the procedures adopted in the constitution and recording of tax credits.

Art. 6 The risk weighting factor of the heading TAX CREDITS - INCOME TAX AND SOCIAL CONTRIBUTION, code 1.8.8.25.00-2, in the annexed table referred to in art. 2, paragraph 1, of Annex IV of Resolution No. 2,099, of 08.17.94, with the wording given to it by art. 1 of Circular No. 2,568, of 05.04.95, is altered, within 180 (one hundred and eighty) days after the date of publication of this Circular, to 100% (one hundred percent).

Art. 7 This Circular enters into force on the date of its publication.

Brasília, March 20, 1997

Alkimar Ribeiro Moura
Director