Investments made by a company to create a new product, or even input for its activity, can generate PIS and COFINS credits, according to a recent Consultation Solution published by the Federal Revenue Service.
Until 2017, the Federal Revenue Service was categorical in stating that expenses with research and development of new products were not eligible for contribution credits.
This understanding changed after the Superior Court of Justice (STJ) ruling, which introduced new guidelines regarding the concept of input. The Federal Revenue Service explained in its decision that the development phase is the phase in which the legal entity effectively focuses its efforts on building an intangible asset whose completion proves technically and financially feasible and whose exploitation through internal use or sale proves possible and advantageous.
Its conclusion was that only expenses incurred after the formal and documented recognition of the beginning of the development phase of an intangible asset that effectively results in: can be considered inputs for the purposes of calculating contribution credits.
an input used in the process of producing goods intended for sale or providing services (for example, a new process for producing goods);
product intended for sale or service provided to third parties.
The IRS’s understanding is that in these cases there is a successful effort and the results generated by the development of the intangible asset (input of the production or provision process or the product or service sold itself) become essential to the production of the good sold or the provision of the service, since they become a “structural and inseparable element of the process” or their absence deprives them of “quality, quantity and/or sufficiency”.
We believe the Federal Revenue Service’s understanding of the matter is reasonable and in harmony with the concept of input given by the STJ.
