CVM Resolution No. 146 of June 15, 2022 — CVM — BR

SECURITIES 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 SCN Q.02 – Bl. A – Corporate Financial Center Building, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil - Tel.: (61) 3327-2030/2031 www.gov.br/cvm

CVM RESOLUTION NO. 146, OF JUNE 15, 2022
Ratifies Technical Interpretation ICPC 19 of the Accounting Pronouncements Committee - CPC, which deals with taxes.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM makes it known 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 companies to apply Technical Interpretation ICPC 19, which deals with taxes, issued by the Accounting Pronouncements Committee - CPC, as per Annex “A” to this Resolution, is hereby ratified.

Art. 2. CVM Deliberation No. 730, of November 27, 2014, is hereby revoked, from the effective date of this Resolution.

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

Electronically signed by
Marcelo Barbosa
President

CVM RESOLUTION NO. 146, OF JUNE 15, 2022
ANNEX “A”

ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL INTERPRETATION ICPC 19
TAXES
Correlation to International Financial Reporting Interpretations Committee – IFRIC 21 (BV2013)

Summary Item
REFERENCES
CONTEXT 1
SCOPE 2 – 6
ISSUES 7
CONSENSUS 8 – 14
APPENDIX A – TRANSITION
ILLUSTRATIVE EXAMPLES

References

CPC 26 – Presentation of Financial Statements
CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors
CPC 32 – Income Taxes
CPC 07 – Government Grants
CPC 05 – Related Party Disclosures
CPC 21 – Interim Financial Reporting
CPC 25 – Provisions, Contingent Liabilities and Contingent Assets
ICPC 15 – Liability Arising from Participation in a Specific Market – Waste of Electrical and Electronic Equipment

CVM RESOLUTION NO. 146, OF JUNE 15, 2022

Context

Governments may impose taxes on entities. The issue presented in this Interpretation refers to when to recognize a liability to pay a tax that is accounted for in accordance with Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets.

Scope
2. This Interpretation deals with the accounting for a liability to pay a tax if that liability is within the scope of Technical Pronouncement CPC 25. It also deals with the accounting for a liability to pay a tax whose timing and amount are certain.
3. This Interpretation does not deal with the accounting for costs that result from the recognition of a liability to pay a tax. Entities must apply other accounting pronouncements to decide whether the recognition of a liability to pay a tax gives rise to an asset or an expense.
4. For the purposes of this Interpretation, a tax is an outflow of resources embodying economic benefits that is imposed on entities by governments in accordance with legislation (i.e., laws and/or regulations), except:
(a) outflows of resources that are within the scope of other accounting pronouncements (such as, for example, income taxes that are within the scope of Technical Pronouncement CPC 32 – Income Taxes); and (b) fines or other penalties that are imposed for violation of legislation. “Government” refers to government, government agencies and similar bodies, whether local, national or international.
5. The payment made by the entity to acquire an asset or receive services pursuant to a contractual arrangement with the government does not meet the definition of a tax.
6. The entity is not required to apply this Interpretation to liabilities that result from emissions trading schemes for greenhouse gases.

Issues
7. To clarify the accounting for a liability to pay a tax, this Interpretation deals with the following issues:
(a) what is the triggering event that gives rise to the recognition of a liability to pay a tax?
(b) does economic compulsion to continue to operate in a future period create a constructive obligation to pay a tax that will be generated by operating in that future period?
(c) does the presumption of going concern imply that the entity has a present obligation to pay a tax that will be generated by operating in a future period?

CVM RESOLUTION NO. 146, OF JUNE 15, 2022

(d) does the recognition of a liability to pay a tax arise at a point in time or, in some circumstances, arise progressively over time?
(e) what is the triggering event that gives rise to the recognition of a liability to pay a tax that is generated if a minimum threshold is reached?
(f) are the principles for recognizing a liability to pay a tax in annual financial statements and in interim financial statements the same?

Consensus
8. The triggering event that gives rise to a liability to pay a tax is the activity that triggers the payment of the tax, as identified by legislation. For example, if the activity that triggers the payment of the tax is the generation of revenue in the current period and the calculation of that tax is based on the revenue that was generated in a previous period, the triggering event for that tax is the generation of revenue in the current period. The generation of revenue in the previous period is necessary, but not sufficient, to create a present obligation.
9. The entity does not have a constructive obligation to pay a tax that will be generated by operating in a future period as a result of the entity being economically compelled to continue to operate in that future period.
10. The preparation of financial statements under the going concern assumption does not imply that the entity has a present obligation to pay a tax that will be generated by operating in a future period.
11. A liability to pay a tax is recognized progressively if the triggering event occurs over a period of time (i.e., if the activity that triggers the payment of the tax, as identified by legislation, occurs over a period of time). For example, if the triggering event is the generation of revenue over a period of time, the corresponding liability is recognized as the entity generates that revenue.
12. If a liability to pay a tax is generated when a minimum threshold is reached, the accounting for the liability resulting from that obligation must be consistent with the principles established in paragraphs 8 to 14 (in particular, paragraphs 8 and 11). For example, if the triggering event is the reaching of a minimum activity threshold (such as, for example, a minimum amount of revenue or sales generated or items produced), the corresponding liability is recognized when that minimum activity threshold is reached.
13. The entity must apply in the interim financial report the same recognition principles that it applies in the annual financial statements. As a result, in the interim financial report, the liability to pay a tax:
(a) will not be recognized if there is no present obligation to pay the tax at the end of the interim financial report period; and

CVM RESOLUTION NO. 146, OF JUNE 15, 2022

(b) will be recognized if the present obligation to pay the tax exists at the end of the interim financial report period.
14. The entity must recognize an asset if it has paid a tax in advance but does not yet have a present obligation to pay that tax.

CVM RESOLUTION NO. 146, OF JUNE 15, 2022

Appendix A – Transition
This appendix is an integral part of the Interpretation and has the same status as the other parts of the Interpretation.
A1. (Eliminated).
A2. Changes in accounting policies resulting from the initial application of this Interpretation must be accounted for retrospectively in accordance with Technical Pronouncement CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors.

CVM RESOLUTION NO. 146, OF JUNE 15, 2022

Illustrative Examples
These examples accompany, but do not form part of, ICPC 19.
The purpose of these examples is to illustrate how the entity should account for the liability to pay tax in its annual financial statements and in its interim financial reports.

Example 1 – A tax is generated progressively as the entity generates revenue Entity A has a fiscal year-end of December 31 each year. According to legislation, a tax is generated progressively as the entity generates revenue in 20X1. The amount of the tax is calculated with reference to the revenue generated by the entity in 20X1. In this example, the liability is recognized progressively during 20X1 as Entity A generates revenue, since the triggering event, as identified by legislation, is the generation of revenue during 20X1. At any point in 20X1, Entity A has a present obligation to pay the tax on the revenue generated to the present date. Entity A has no present obligation to pay the tax that will result from the generation of revenue in the future. In the interim financial report (if any), the liability is recognized progressively as Entity A generates revenue. Entity A has a present obligation to pay the tax on the revenue generated from January 1, 20X1 to the end of the interim period.

Example 2 – A tax is generated in full as soon as the entity generates revenue Entity B has a fiscal year-end of December 31 each year. According to legislation, a tax is generated in full as soon as the entity generates revenue in 20X1. The amount of the tax is calculated with reference to the revenue generated by the entity in 20X0. Entity B generated revenue in 20X0 and in 20X1 begins to generate revenue on January 3, 20X1. In this example, the liability is recognized in full on January 3, 20X1, because the triggering event, as identified by legislation, is the first generation of revenue in 20X1. The generation of revenue in 20X0 is necessary, but not sufficient, to create the present obligation to pay the tax. Before January 3, 20X1, Entity B had no present obligation to pay the tax. In other words, the activity that triggers the payment of the tax, as identified by legislation, is the point at which Entity B first generates revenue in 20X1. The generation of revenue in 20X0 is not the activity that triggers the payment of the tax and the recognition of the liability. The amount of revenue generated in 20X0 affects only the measurement of the liability. In the interim financial report (if any), the liability is recognized in full in the first interim period of 20X1, since the liability is recognized in full on January 3, 20X1.

CVM RESOLUTION NO. 146, OF JUNE 15, 2022

Example 3 – A tax is generated in full if the entity operates as a bank on a specific date Entity C is a bank and has a fiscal year-end of December 31 each year. According to legislation, a tax is generated in full only if the entity operates as a bank at the end of the annual reporting period. The amount of the tax is calculated with reference to the values presented in the entity’s financial statements at the end of the fiscal year. The fiscal year-end of Entity C is December 31, 20X1. In this example, the liability is recognized on December 31, 20X1, because the triggering event, as identified by legislation, is the operation of Entity C as a bank at the end of the fiscal year. Before that point, Entity C has no present obligation to pay the tax, even though it is economically compelled to continue to operate as a bank in the future. In other words, the activity that triggers the payment of the tax, as identified by legislation, is the operation of the entity as a bank at the end of the fiscal year, which does not occur until December 31, 20X1. The conclusion would not change even if the amount of the liability were based on the duration of the financial reporting period, since the triggering event is the operation of the entity as a bank at the end of the fiscal year. In the interim financial report (if any), the liability is recognized in full in the interim period that includes December 31, 20X1, since the liability is recognized in full on that date.

Example 4 – A tax is generated if the entity generates revenue above a minimum value Entity D has a fiscal year-end of December 31 each year. According to legislation, a tax is generated if the entity generates revenue above $50 million in 20X1. The amount of the tax is calculated with reference to the revenue generated above $50 million, with the tax rate being 0% for the first $50 million of revenue generated (below the threshold) and 2% above $50 million in revenue. Entity D’s revenue reaches the revenue threshold of $50 million on July 17, 20X1. In this example, the liability is recognized between July 17, 20X1 and December 31, 20X1, as Entity D generates revenue above the threshold, since the triggering event, as identified by legislation, is the activity performed after the threshold is reached (i.e., the generation of revenue after the threshold is reached). The amount of the liability is based on the revenue generated to the present date that exceeds the $50 million threshold. In the interim financial report (if any), the liability is recognized between July 17, 20X1 and December 31, 20X1, as Entity D generates revenue above the threshold.

Variation:
The same situation as above (i.e., a tax is generated if Entity D generates revenue above $50 million in 20X1), except that the amount of the tax is calculated with reference to all revenue generated by Entity D in 20X1 (i.e., including the first $50 million in revenue generated in 20X1).

In this example, the liability for the payment of the tax relating to the first $50 million in revenue is recognized on July 17, 20X1, when the threshold is reached, since the triggering event, as identified by legislation, for the payment of that amount is the reaching of the threshold. The liability for the obligation to pay the tax relating to the revenue generated above the threshold is recognized between July 17, 20X1 and December 31, 20X1, as the entity generates revenue above the threshold, since the triggering event, as identified by legislation, is the activity performed after the threshold is reached (i.e., the generation of revenue after the threshold is reached). The amount of the liability is based on the revenue generated to the present date, including the first $50 million in revenue. The same recognition principles applied in the interim financial report (if any) apply in the annual financial statements.

Lineage: No known changes