Deductibility of expenses with gifts

Area Bulletin

by Chediak Advogados
05.Aug.2022

By Tax Area

In a unanimous decision, in case No. 19515.001156/2008-00, the 1st Panel of the Superior Chamber of the Administrative Council of Tax Appeals (“CARF”) decided that expenses with gifts, provided in small amounts, can be deducted as advertising expenses, being, therefore, deductible from the Corporate Income Tax (“IRPJ”) calculation basis.

It is important to note that the deductibility of advertising expenses, paid or credited to any companies, shall meet the following criteria: (i) be directly related to the activity explored by the company; (ii) respect the accrual basis; (iii) be recorded separately in their own account; and, (iv) have as beneficiary a company enrolled with the CNPJ and that maintains regular accounting records.

However, since January 1996, with the advent of Law No. 9.249/95, the Tax Authorities had been understanding that the provisions of CST Normative Opinion No. 15, of 1976, dealing with expenses with gifts as deductible, were not applicable, by express legal prohibition.  Such expenses should be treated as non-deductible regardless of whether they aim to increase sales or promote the company, and they shall be adjusted in the Actual Profit Determination Electronic Ledger (“LALUR”) as an addition.

In favor of the taxpayer, in March 2021, Bill (“PL”) No. 695/21 was proposed, which seeks to amend Law No. 9.249/95 in order to allow the deduction of expenses with gifts not only in the determination of profit, but also the calculation basis of the social contribution on net income. So far, the Bill is awaiting the designation of a rapporteur before the finance and taxation commission (“CFT”).

Finally, despite the decision being in favor of the taxpayer, the matter will still generate many discussions due to what would be the amount considered as a “minimal amount” of expenses with gifts that shall be admitted as advertising expenses? Nor can the possibility of the Bill amending Law No. 9.249/95 and allowing the deduction of gifts, even if these are not the purpose of the company's operational activities, be disregarded.