Former Secretary of the Federal Revenue Service, Everardo Maciel said in an interview with CNN that the Ministry of Finance’s proposal to end Interest on Equity (JCP) is a “step backwards”.
He helped implement the model in Brazil in the 1990s, during the government of Fernando Henrique Cardoso.According to the former secretary, the JCP encourage investments and avoid “abusive tax planning” – which configure maneuvers made by taxpayers to escape the lion of Revenue.
“The JCP, along with other changes in the IRPJ [Legal Entity Income Tax], produced collection results. The collection of the IRPJ, between 1996 and 2002, had a real growth of 117%. The IRPJ’s share of GDP increased by 50%,” he explains.”And the taxpayers liked it, which is unbelievable. It’s good for the taxpayer and for the tax authorities.”
He also points out that, in 2022, the European Union Commission regulated the JCPs.
The Lula government presented at the end of August the proposal that prohibits the deduction of the JCP from the calculation basis of IRPJ and CSLL (Social Contribution on Net Income). With this, it puts an end to the advantages of the model.
The JCP- INTEREST OVER CAPITAL
A tax reform made by the government of Fernando Henrique Cardoso, in 1996, implemented the current investment remuneration model, with the possibility of companies paying partners and shareholders through JCP or dividends.
With the payment of dividends, there is no tax at all. Already with JCP, the investor pays 15% in Income Tax (IR).
Companies like to remunerate with JCP to deduct taxes: as interest is considered a type of expense, paying it reduces the final profit and, with it, also the IR to be paid.
According to the Minister of Finance, Fernando Haddad, companies use this feature to “artificially transform” profits into JCP, and thus pay less taxes.
Maciel says that introducing the JCP also aimed to give a new possibility of tax deduction to companies, at a time when the load was rising, and, at the same time, to encourage investors to put more money in them.
The remuneration of shareholders
In most of the world, the Corporate Income Tax is collected on two fronts: in the total profit calculated, still within the company, and in the piece of this profit distributed to owners, partners and investors, which is the dividend.
Interest on Equity is a mixture of the dividend and financial interest, paid to banks and lenders on loans.
Like financial interest, JCPs are also accounted for as an expense and deduct tax. The difference is that they are paid to those who invest in the company, and not to those who lend – so “about the capital” -, and without the need to return the amount contributed.
That’s why they help attract investments and, if they cease to exist, in Maciel’s opinion, they will lead companies to resort more to loans to raise money.
Source: CNN Brazil.