Dividends: What changes with Law No. 12,973/14?
Por Rodrigo Lara
The introduction of the International Financial Reporting Standards (IFRS) in Brazil in 2008 brought significant changes to the accounting rules governing companies, including the calculation of net profit, which is used to calculate the dividends to be paid to quotaholders or shareholders.
This has sparked an intense debate on whether dividends can be calculated and paid – without taxes – based on the profit calculated using the IFRS, especially when the profit under the IFRS is higher than the profit calculated based on the old accounting rules.
In an effort to put an end to this debate, Provisional Measure (local acronym MP) No. 627/13 was enacted late last year to, among other things, make clear that the dividends calculated based on the results between 2008 and 2013 and actually paid until the date of publication of such MP were not subject to any tax, even when these profits are higher than those calculated based on the old rules.
The actual payment until the date of publication of the MP was not the only requirement. Under the original MP text, companies were also required to elect the application of the MP provisions already in 2014 – although it will only come into force in 2015.
Fortunately, these requirements were excluded when the MP was converted into Law No. 12,973/14. The dividends calculated between 1/1/2008 and 12/31/2013 based on profits higher than the profits calculated under the rules in force before 2008 are no longer subject to taxation, regardless of any actual payment or the company’s election of the application of the MP rules as from 2014.