Relevant currency fluctuations allows contributors to review the taxes on currency oscillation

Did you know that in Brazil taxation of exchange rates are different in large swings?

Since the introduction in Brazil of Provisional Measure 2,158-35 of August 24, 2001, taxpayers can choose to tax the effects of currency rates by the cash regime or by the accrual basis, of IRPJ and monthly CSLL.

Since the publication of Law 12.249 of 2010 and other normative acts, the option to tax the effects of currency rates – by the cash or accrual regime – is informed by sending the DCTF of the jurisdiction annually every January– an irreversible option throughout that year.

Imagine that your company has a large foreign currency liability, which is constantly changing due to currency fluctuations.

When calculating the IRPJ and CSLL of this case, it is ideal to opt in the annual DCTF by the CAIXA regime in order to neutralize the unrealized tax effects of the change in the value of a foreign currency. This way, the company taxes the possible gain or loss with exchange variation only when there is the actual payment.

However, if the option this January was for COMPETENCE, there may be an opportunity to adjust the DCTF.

Based on Decree 8451 of 2015, the change in there could be a change of regime when there is a high currency fluctuation rate. This change should occur on the month following that in which the high exchange rate fluctuation occurred. This is due to the recognition of the monetary variations of the credit rights and of the obligations of the taxpayer according to the exchange rate.

Exchange rate fluctuations are considered high when the US dollar – selling price and verified by the Central Bank of Brazil – is subject to a positive or negative variation of more than 10% (ten percent) in the period of one (1) calendar month, as provided for in Article 1 of said Decree.

In August 2018, for example, the currency rate fluctuated by 10.30%.

So, the moment demands careful attention! Talk to your accountant and check DCTF and LALUR, to see if the CAIXA scheme option is in both documents.

Is it not? Is it by competence?

Contact us for a more detailed evaluation.