On 11th December 2018, Law No. 13.755/2018 was sanctioned, as a result of the conversion of Provisional Measure No. 843, known as “Route 2030”, establishing a special tax regime for the automotive sector, by granting fiscal incentives to car manufactures and importers of auto parts without production capacity for national equivalent products.
The program establishes rules that aim to improve fuel consumption (“energy efficiency”) and safety – with specifications defined by the National Traffic Council – (“CONTRAN”) – and also offers, initially for a period of 05 (five) years, tax rebates to companies investing in projects and research in technological innovation in Brazil.
With some controversial points, Route 2030 brings good news for the Northeastern (where Ford and Fiat Chrysler are located) and Northern regions (where BMW, Harley-Davidson, Honda and Yamaha are located), as the regional incentive program, the duration of which was scheduled to last until 2020, has been extended to 2025. Manufacturers in the Midwest, who satisfy beneficiary requirements and submit projects for the development of new products (or new models of existing products), will be entitled to IPI presumed credits as reimbursement for PIS and COFINS contributions levied on sales to be made between 2021 and 2025.
Pursuant to article 10, companies that: (i) are in good standing in terms of payment of federal taxes; and (ii) prove that they are formally authorized to (ii.i) conduct, within national territory, the activities of providing technical assistance and distribution network organization and (ii.ii) use the manufacturer’s trademarks in respect of vehicles imported can qualify for the Route 2030 program.
In general, qualifying companies may deduct from Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) levied on the amount corresponding to IRPJ rate and surtax and the rate of CSLL up to 30% (thirty percent) of the disbursements made in the country, corresponding to the ascertainment period, as long as they are classified as operating expenses by the IRPJ legislation and are fully applied to research and technological developments.
Route 2030 aims to make the domestic market more competitive since currently most technological innovations are imported rather than developed internally. The automotive sector has an important participation in the world industrial structure and, in Brazil, represents around 22% of the industrial GDP.