Expenses directly related to statutory obligations incurred by companies in Brazil may give right to tax credits.
In particular, if certain requirements are met, business costs related to obligatory sustainable practices and the recovery of the environment can generate tax credits. The economic effect is considerable: the expenses can be deducted from the Federal gross receipt contributions (known as PIS and COFINS), which reach a 9.25% tax rate.
Certain green practices are mandatory by law, decrees or regulations and are specifically provided to some business sectors and, therefore, are mandatory for they to carry out their activities: they are a legal requirement for the very provision of the service or the production.
Legal obligations have tax consequences. To give right to PIS and COFINS’ credits, the expense must be essential to the productive activity, as decided by the Superior Court of Justice of Brazil (STJ), which includes expenses to comply with specific legal requirements.
For instance, the Federal Revenue of Brazil (RFB) has already established that expenses treatment of wastewater, sewage and waste in general give right to credits for a given sector. In this case, companies can recover credits from the last 5 years directly.
Besides that, the Administrative Court of Tax Appeals in Brazil (CARF) has already recognized tax credits due to the acquisition of earthworks services and final disposal of solid waste, air monitoring and other services necessary for the recovery of the environment, also for a specific sector.
Expenses and, consequently, tax credits can vary greatly depending on the specific activity of the company. Hence the enormous importance of an internal and detailed verification of expenses to compliance with mandatory green responsibilities.