On 7 June 2016, the Brazilian Revenue Department enacted Declaratory Act Nº 4/2016, clarifying that taxpayers, accruing PIS and COFINS under both cumulative and non-cumulative rules, shall be able to offset PIS and COFINS credits against revenues accrued on transactions subject to the one time levy rule, such as transactions with cosmetics, pharmaceutical products, fuel and lubricants.
According to the Declaratory Act, revenues under the so-called one time levy rule (i.e. regime monofásico) shall be treated as non-cumulative revenues for purposes of calculating the ratio between non-cumulative revenues versus total revenue. This ratio shall be further used for purposes of calculating the proportional credits that taxpayers subject to the mixed method may apply when determining the credits related to the non-cumulative revenues.
This clarification allows companies to revisit their current procedures and verify opportunities of additional PIS/COFINS credits. It is an important clarification as there were previous Rulings issued by the Brazilian Revenue Department determining that those revenues (i.e. related to one time levy products) would not generate PIS and COFINS credits.