The Superior Chamber of the Administrative Council for Tax Appeals ( CARF) has authorized a rural producer to benefit from accelerated depreciation in relation to sugarcane plantations, which allows for a significant reduction in the calculation of Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL). The decision in favor of the taxpayer represents a positive change of understanding by the same judging body, since the last time the issue was analyzed the taxpayer had been defeated.
The discussion involves an analysis of the accounting/tax treatment that should be given to the resources invested in the formation of sugarcane plantations, which are integrated into the taxpayer’s fixed assets. The Federal Revenue Service argues that the crop is subject to depletion, while rural producers believe that the asset should be depreciated.
Depreciation is an accounting technique for reducing the value of assets used in a company’s end activities due to their wear and tear or loss of usefulness through use. The periodic depreciation of an asset is recorded as an operating cost or expense, which reduces the company’s taxable income.
Exhaustion, on the other hand, is a similar technique, which applies to the exploitation of mineral or forest resources that are completely extinguished over time.
Article 6 of Provisional Measure 2.159/01 grants rural producers the tax benefit of accelerated depreciation, allowing permanent assets to be fully depreciated in the same year in which they were acquired. This benefit allows rural producers to take advantage of the tax deduction resulting from depreciation instantly. According to the literal wording of the article, the benefit only applies if the fixed asset is subject to depreciation. If the accounting technique to be used is depletion, the rural producer would not be able to take advantage of the tax deduction instantly, but rather over the years in which the depletion charges are appropriated.
The crux of the matter, therefore, lies in the analysis of the longevity of the sugarcane crop. Mineral or forest resources that are extinguished by their own exploitation are subject to exhaustion and durable goods that lose value as a result of wear and tear are subject to depreciation.
Generally speaking, the Treasury only allows fruit-producing crops to be depreciated, since the fruit is harvested in one season and grows again in the next. For other cases, in which the use of the crop does not derive from the harvesting of fruit, but from the extraction of the plant itself, the accounting treatment should be depletion.
In the recent case analyzed by CARF, the prevailing view was that although sugarcane crops do not produce “fruit” in the biological sense of the term, harvesting the cane does not eliminate the underground part of the crop, which remains alive with its roots, so that after cutting the plant grows again. Based on this premise, the Chamber concluded that the crop produces “fruit” in the legal sense of the term, which corresponds to goods or utilities derived from a pre-existing thing.
This is an important precedent that validates a significant tax benefit granted to rural producers, which shows how important it is for taxpayers to always be aware of the changes that occur in the complex interpretation of tax legislation, making the most of the possibilities for reducing their tax burden.
