Profit distribution must be anticipated to avoid the impact of the tax reform.
While businesspeople are carrying out simulations on the impacts of the tax reform proposal (Bill No. 2,337, of 2021: phase 2) on their businesses, another equally important issue is the intention to levy tax on dividends at a 20% rate resulting from profits of 2021 and earlier periods that was included in the proposal.
Typically, companies wait for the first months of the year to ascertain their results from the previous year and approve the allocation of profits and the distribution of dividends. Many companies hire independent auditors to audit the numbers, which also takes some time to complete the work, and usually end up having their financial statements from the previous year ready for approval only in April of the subsequent year.
With the proposed reform, should this routine of approving accounts from the previous year only at the beginning of the following year be different in 2022? There is a high risk that it will. And that the impact will be huge!
The proposal gained momentum and there is great expectation that it will be approved this year. If this happens, the taxation of dividends will take effect from January 1, 2022, and with a controversy: if the text is passed as is, both the declaration and the payment of dividends will be taxed (regardless of whether the profits were generated in the exemption period).
The businessperson needs to be on high heels. Although the interpretation that only profits generated from 2022 onwards would be affected by taxation seems reasonable, this is not what the text of the tax reform proposal says.
Businessperson should be prepared to anticipate the distribution of profits this year, avoiding a future discussion with the tax authorities about the taxation of results generated prior to 2022. There are certain rules to be followed and planning is necessary for this to be done safely. Don’t put off until 2022 what can be done in 2021!