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Decision admitting the use of PIS/COFINS credits for investment in General Data Protection

On July 17, 2021, an important decision for entrepreneurs was published by the 4th Federal Court of Campo Grande regarding Brazilian taxation and the General Data Protection Law (“LGPD”). In the discussion regarding the expenses incurred by the company for the implementation and adjustment to the LGPD, the court decided that this type of expense had the nature of input for the purpose of PIS/ COFINS credit under the non-cumulative regime.

It is worth recalling that with the creation of the non-cumulative regime of PIS/COFINS (Laws 10,637/2002 and 10,833/2003), taxpayers are allowed to deduct these credits from their contributions calculated on the basis of goods and services used as input in the provision of services and in the production or manufacture of goods or products intended for sale, including fuels and lubricants (Article 3, II, § 3, I).

Given the numerous interpretations regarding the scope of the term ‘input’, the judiciary has ruled and the STJ has decided (Special Appeal 1.221.170/PR, judged on 2/22/2018), under the repetitive appeal system, that the definition of ‘input’ should be sought in light of the essentiality or relevance of the item for the development of the taxpayer's business – including when such relevance arises from a legal imposition.

In this context, the current investment of companies to adapt to the LGPD appears to be a mandatory expense, imposed by the legislator and moreover, sanctioned in case of non-compliance with the legal provisions. It seems clear, therefore, that the relevance of this expense is in fact fully proven and characterized and that failure to comply with the standards of the LGPD constitutes a barrier to the company's activities and will involve a substantial loss of credibility.

Indeed, given the penalties that will be imposed as of August 2021, this legal obligation of adequacy becomes inevitable. In addition to these sanctions, non-compliant companies will lose competitiveness in the market, especially in international negotiations and transactions, given that many countries are already far ahead in terms of data protection compliance.

Thus, it appears that there are solid grounds for characterizing the expenses incurred to comply with the LGPD as an input for PIS/COFINS purposes (non-cumulative tax regime), although the decision discussed above still requires confirmation given that it is a decision of first instance.

GT Lawyers - August 12th, 2021

Article prepared by Ana Márcia, lawyer at GTLawyers and reviewed by partners Anne Brunschwig and Estevão Gross. For more information, please contact the telephone (21) 2540 7282 or e-mail abrunschwig@gtlawyers.com.br.