CVM Resolution 148: Ratification of CPC Technical Interpretation ICPC 22 on Uncertainty over Income Tax Treatments

SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 Ratifies Technical Interpretation ICPC 22 of the Accounting Pronouncements Committee - CPC, which deals with uncertainty over the treatment of taxes on profit.

The PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6,404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6,385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10,139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. The obligation for open capital companies to apply Technical Interpretation ICPC 22, which deals with uncertainty over the treatment of taxes on profit, issued by the Accounting Pronouncements Committee - CPC, as per Annex “A” to this Resolution, is hereby ratified.

Art. 2. CVM Deliberation No. 804, of December 27, 2018, is hereby revoked, effective from the entry into force of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Signed electronically by
Marcelo Barbosa
President

ANNEX “A”

ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL INTERPRETATION ICPC 22
UNCERTAINTY OVER INCOME TAX TREATMENTS
Correlation to International Financial Reporting Interpretations Committee – IFRIC 23

Summary Item
REFERENCES
CONTEXT 1 – 3
SCOPE 4
ISSUES 5
CONSENSUS 6 – 14
If the entity considers uncertain tax treatments separately 6 – 7 Examination by tax authorities 8 Determination of taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates 9 – 12 Changes in facts and circumstances 13 – 14

APPENDIX A – APPLICATION GUIDANCE
APPENDIX B – EFFECTIVE DATE AND TRANSITION

References

CPC 26 – Presentation of Financial Statements
CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors
CPC 24 – Events After the Reporting Period
CPC 32 – Income Taxes

Context

CPC 32 – Income Taxes specifies requirements for current taxes and deferred tax assets and liabilities. The entity must apply the requirements of CPC 32, based on the applicable tax legislation.
It may not be clear how tax legislation applies to a particular transaction or circumstance. The acceptability of a particular tax treatment, in accordance with tax legislation, may not be known until the relevant tax authority or court makes a decision in the future. Consequently, the challenge or examination of a particular tax treatment by the tax authority may affect the accounting for the current or deferred tax asset or liability of the entity.
In this Interpretation:
(a) “tax treatments” refer to the treatments used by the entity or that it plans to use in the calculations of taxes on profit; (b) “tax authority” refers to the body or bodies that decide whether tax treatments are acceptable in accordance with tax legislation. This may include courts; (c) “uncertain tax treatment” is the tax treatment for which there is uncertainty about whether the relevant tax authority will accept the tax treatment in accordance with tax legislation. For example, the entity’s decision not to present any calculation of taxes on profit in the tax jurisdiction, or not to include certain revenue in taxable profit, is an uncertain tax treatment if its acceptability is uncertain in accordance with tax legislation.

Scope
4. This Interpretation clarifies how to apply the recognition and measurement requirements in CPC 32 when there is uncertainty over the treatments of taxes on profit. In this circumstance, the entity must recognize and measure its current or deferred tax asset or liability, applying the requirements of CPC 32 based on the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined, applying this Interpretation.

Issues
5. When there is uncertainty over treatments of taxes on profit, this Interpretation deals with:
(a) whether the entity should consider uncertain tax treatments separately; (b) the assumptions that the entity must make about the examination of tax treatments by tax authorities; (c) how the entity must determine taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates; and (d) how the entity must consider changes in facts and circumstances.

Consensus
If the entity considers uncertain tax treatments separately
6. The entity must determine whether it should consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments, based on the approach that best estimates the resolution of the uncertainty. In determining the approach that best estimates the resolution of the uncertainty, the entity may consider, for example, (a) how to calculate taxes on profit and support tax treatments; or (b) how the entity expects the tax authority to conduct its examination and resolve issues that may arise from that examination.
7. If, when applying item 6, the entity considers more than one uncertain tax treatment together, the entity must interpret references to “uncertain tax treatment” in this Interpretation as references to the group of uncertain tax treatments considered together.

Examination by tax authorities
8. In assessing whether and how the uncertain tax treatment affects the determination of taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates, the entity must assume that the tax authority will examine the amounts that it has the right to examine and will have full knowledge of all information related to conducting those examinations.

Determination of taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates
9. The entity must consider the probability that the tax authority will accept the uncertain tax treatment.
10. If the entity concludes that it is probable that the tax authority will accept the uncertain tax treatment, the entity must determine taxable profit (tax loss), tax base, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its tax return on taxes on profit.
11. If the entity concludes that it is not probable that the tax authority will accept the uncertain tax treatment, the entity must reflect the effect of the uncertainty in the determination of its taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates. The entity must reflect the effect of the uncertainty for each uncertain tax treatment, using one of the following methods, depending on which method the entity expects to provide the best prediction of the resolution of the uncertainty:
(a) the most likely value – the single most likely value in a range of possible outcomes. The most likely value may provide the best prediction of the resolution of the uncertainty if the possible outcomes are binary or are concentrated in a value; (b) the expected value – the sum of probability-weighted values across the range of possible outcomes. The expected value may provide the best prediction of the resolution of the uncertainty if there is a range of possible outcomes that are neither binary nor concentrated in a value.

If the uncertain tax treatment affects current and deferred tax (for example, if it affects both the taxable profit used to determine current tax and the tax bases used to determine deferred tax), the entity must make consistent judgments and estimates for both current tax and deferred tax.

Changes in facts and circumstances
13. The entity must reassess the judgment or estimate required by this Interpretation if the facts and circumstances on which the judgment or estimate are based change or as a result of new information that affects the previous judgment or estimate. For example, a change in facts and circumstances may change the entity’s conclusions on the acceptability of the tax treatment or the entity’s estimate of the effect of the uncertainty, or both. Items A1 to A3, below, establish guidance on changes in facts and circumstances.
14. The entity must reflect the effect of the change in facts and circumstances or of new information as a change in accounting estimate, applying CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors. The entity must apply CPC 24 – Events After the Reporting Period to determine whether the change occurring after the end of the reporting period is an event that requires adjustments or not.

Appendix A – Application guidance
This Appendix forms an integral part of this Interpretation and has the same importance as the other parts of this Interpretation.

Changes in facts and circumstances (item 13)
A1. When applying item 13, the entity must assess the relevance and effect of the change in facts and circumstances or of new information in the context of applicable tax laws. For example, a specific event may result in the reassessment of the judgment or estimate made for a tax treatment, but not for another, if those tax treatments are subject to different tax laws. A2. The examples below of changes in facts and circumstances or new information that, depending on the circumstances, may result in the reassessment of the judgment or estimate required by this Interpretation include, without limitation:
(a) examinations or actions by the tax authority. For example:
(i) agreement or disagreement by the tax authority with the tax treatment or similar tax treatment used by the entity; (ii) information with which the tax authority agreed or disagreed regarding a similar tax treatment used by another entity; and (iii) information on the amount received or paid to settle a similar tax treatment; (b) changes in rules established by the tax authority; (c) the expiration/expiration of the right of the tax authority to examine or re-examine the tax treatment. A3. The absence of agreement or disagreement with a tax treatment by the tax authority, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by this Interpretation.

Disclosure
A4. When there is uncertainty over treatments of taxes on profit, the entity must determine whether it must disclose:
(a) judgments made in determining taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates, applying item 122 of CPC 26; and (b) information on the assumptions and information made in determining taxable profit (tax loss), tax base, unused tax losses, unused tax credits and tax rates, applying items 125 to 129 of CPC 26. A5. If the entity concludes that it is probable that the tax authority will accept the uncertain tax treatment, the entity must determine whether it must disclose the potential effect of the uncertainty as a tax-related contingency, applying item 88 of CPC 32.

Appendix B – Effective date and transition
This Appendix forms an integral part of this Interpretation and has the same importance as the other parts of this Interpretation.

Effective date
B1. The effective date of this Interpretation will be given by the regulatory bodies that approve it, notwithstanding that to comply with international accounting standards the entity must apply this Interpretation for annual reporting periods beginning on or after January 1, 2019.

Transition
B2. On initial application, the entity must apply this Interpretation:
(a) retrospectively, applying CPC 23, if this is possible without the use of subsequent facts and knowledge; or (b) retrospectively, with the cumulative effect of initially applying this Interpretation recognized on the date of initial application. If the entity chooses this transition approach, it must not restate comparative information. Instead, the entity must recognize the cumulative effect of initially applying this Interpretation as an adjustment to the opening balance of retained earnings (or another component of equity, as appropriate). The date of initial application is the beginning of the annual reporting period in which the entity first applies this Interpretation.

CVM Resolution 148: Ratification of CPC Technical Interpretation ICPC 22 on Uncertainty over Income Tax Treatments

Lineage: In force