In recent judgments, the Superior Court of Justice (STJ) handed down two decisions favorable to taxpayers, authorizing the deductibility of expenses incurred by companies on payment of expenses for Interest on Capital Invested (JCP) from prior years.
The decisions that define the legal basis for the JCP do not impose any time limit for deductions of payments made on this basis. They merely reiterate the condition that the company must have profits for the year or retained earnings and earnings reserve in an amount equal to or greater than twice the JCP that will be paid. As regards the accrual basis of accounting, the rulings determined that the obligation to pay the JCP arises when decided by the shareholders and at this time the expense is to be recognized accounting-wise, as is the respective tax ramification.
Although the two judgments highlighted here have not been affected as repetitive appeals, this positioning on the part of the STJ merely reinforces its interpretation favorable to the deduction of prior years’ JCP, an issue that has been debated for more than a decade now.
These precedents reinforce the importance of such interest, besides providing greater legal security to companies availing themselves of this option as a means of remunerating the capital invested by their shareholder.