On December 30^th, 2022, Decrees No. 11,321 and 11,322 were published, which, respectively: (i) granted a 50% discount on the AFRMM (“Additional Freight for the Renewal of the Merchant Marine”); and (ii) reduced PIS and COFINS rates to 0.33% and 2% on financial revenues for companies subject to the Real Profit Method to calculate its Corporate Income Taxes (“CIT”).

However, on January 1^st, 2023, Decree No. 11,374 was published, which revoked both Decrees to immediately return: (i) the full collection of the AFRMM; and (ii) the previous PIS and COFINS rates (0.65% and 4%) on financial revenues for companies subject to subject to the Real Profit Method to calculate its CIT. Therefore, based on the principles of the annual and nonagesimal anteriority, Decree No. 11,374/2023 would be unconstitutional because, respectively: (i) increased the AFRMM in the same financial year; and (ii) revoked the tax rate reduction benefit, increasing taxation before 90 days have passed.

As a consequence, in principle, based on the Federal Constitution: (i) the increase in the AFRMM would be valid only from January 1^st, 2024; and (ii) the revoke of the PIS and COFINS rates and the return to the previous rates (increase in relation to the rates reduced by Decree 11,322) would be valid only from April 1^st, 2023.

In this context, we recommend that taxpayers subject to the taxes described above to assess the financial impact and consider filing a lawsuit to avoid that the Federal Tax Authorithies try to collect the aforementioned taxes before observing the constitutional principles mentioned above.

By Henrique Erbolato