Tax compensation and restitution: what it is, eligibility and possibilities

Recovering unduly paid values by tax compensation and restitution is a way to increase the business financial capacity

Companies are increasingly aware of the possibilities offered by tax compensation and restitution. The taxpayer has the right to recover values unduly paid as taxes.

The revenue report made by the Federal Revenue Office in 2021 shows that compensated debts represented, in regard to the year of 2020, a movement of around BRL 206 million, a 23.6% increase.

That demonstrates how companies are paying more attention to credit recovery procedures as a tool to enhance financial ability.

And this possibility is not limited to federal taxes. Credits paid to states and municipalities may also be compensated or restituted.

Advantages for tax compensation and restitution

When compensation and restitution procedures take place in compliance with the tax legislation, they bring great benefits to companies, such as:

Read also: Compensation and restitution of federal taxes: crisis scenario expands search for tax opportunities

Who can benefit from it?

How does it work?

When the active subject of a tax obligation (federal, state, or municipal governments) recognizes an unduly payment of credits, refund to taxpayer is allowed through two different paths: p>

Restitution in Cash;

The tax compensation happens with the debts of other taxes administered by that same entity.

“Through compensation, the taxpayer uses the amount they are entitled to recover to pay future taxes, thus not having a forthcoming financial disbursement. Restitution, on the other hand, actually, is the one that received the amount in cash, via bank deposit”, Cássia Calixto, member in DPC and specialist in indirect taxes, explains.

She adds that preferring one modality to the other is a decision made by the taxpayer When they make the request, but the entity is responsible for accept it or not.

Where to start?

“The first step to more safety in the compensation and restitution process is to make a tax review over the last five year so that any unduly payments or even overpayments may be identified”, Glauciele Knupp, member in DPC and specialist in direct taxes, orients.

This diagnosis will detect situation that might lead to the recovery of credits related to taxes paid in every level of government, besides bringing other benefits, such as tax burden reduction and tax risk diminishment.

Know more: What can tax review do for your company?

Stages of the Process

If the tax review identifies and confirms the existence of credit, the taxpayer may act administratively through the request for compensation or restitution via Pedido Eletrônico de Restituição ou Ressarcimento e a Declaração de Compensação (PER/DCOMP, or Restitution or Reimbursement and Declaration of Compensation

Where are the opportunities?

State

Return of the material acquired through tax substitution

Purchase through tax substitution for interstate resale

Approved credit that was not taken

Credit on transportation services

Possibility of benefit enjoyment

Municipal

Invoices issued for non-rendered services

Incorrect Rate Emphasis

Invoices issued in duplicate

Federal

Simples Nacional

• PIS and Cofins credit on monophase products



Taxable Income and Presumptive Income

• Liquidated and certain credits: those which have not been enjoyed by the client for some time, but are legally granted;
• IPI credit: industrial corporations have the right to a credit on input;
• Reintegra: PIS and Cofins credit on export;
• IRPJ and CSLL unduly payments or overpayments;
• Non-cumulative PIS and Cofins: credits over inputs, assets, costs, and expenses;
• ICSM exclusion from the PIS and Cofins base

ICSM exclusion from the PIS and Cofins base

In May 2021, the Federal Supreme Court determined the so-called “thesis of the century”, that stated that ICMS should not be part of the PIS/Cofins tax base. They also defined that, When ICMS to be taken into consideration for exclusion would be highlighted on the invoice, and that it would only be effective a from 03/15/2017.

Since this decision, companies taxed within the Taxable Income and Presumptive Income systems have become able to demand compensation or restitutions for overpaid values since 03/15/2017, except for the cases of judicial actions and administrative requests protocoled before that date.

This has been allowing great opportunities for business. Taxpayers who have not files suits in courts may demand the credits to be compensated administratively from 03/15/2017, while having accessory obligations regarding the period to be rectified.

In turn, companies whose credits are recognized judicially may also file qualification requests before the Federal Revenue Office.

A trustworthy partnership for tax optimization

Domingues e Pinho Contadores’s specialized team has the technical expertise to deliver solutions that are always in compliance with the legislation, offering support to strategic decisions and tax-related opportunities. Talk to DPC’s specialists: dpc@dpc.com.br.

Check out the webinar recording (in Portuguese): Compensação e restituição de créditos tributários: oportunidades para a minha empresa?