Financial Reporting & Tax Compliance
Deferred tax asset recoverability
Realisation studies of deferred tax assets under IAS 12 and CPC 32.
Realisation studies of deferred tax assets under IAS 12 and CPC 32.
A deferred tax asset records the corporate income tax (IRPJ) and social contribution on net profit (CSLL) that a company will not pay in the future because of tax losses, negative CSLL tax bases and deductible temporary differences. IAS 12 and its Brazilian equivalent, CPC 32, allow it to be recognised only to the extent that sufficient future taxable profit is probable, and require recoverability to be reviewed at each reporting date.
The asset is recognised to the extent that it is probable that taxable profit will be available against which the temporary differences and losses can be used (paragraphs 24 and 34). When the company has a history of recent losses, recognition requires sufficient taxable temporary differences or other convincing evidence of future taxable profit (paragraph 35).
The carrying amount is reviewed at each reporting date and reduced when taxable profit is no longer probable (paragraph 56). When realisation depends on future profits and the company has suffered a loss in the current or preceding period, the notes disclose the amount of the asset and the nature of the evidence supporting it (paragraph 82).
IAS 12 · CPC 32 · IFRIC 23
In Brazil, tax losses and negative CSLL tax bases do not expire, but their offset is limited to 30% of taxable income and of the CSLL base in each period (Law 9,065/1995, arts. 15 and 16). The projection therefore has to compute taxable profit year by year and apply the cap, which lengthens the realisation period and weighs on the probability assessment. Losses can no longer be offset after a change in both control and business activity. A successor by merger, amalgamation or spin-off also cannot offset the predecessor's losses (Decree-Law 2,341/1987, arts. 32 and 33).
CVM Instruction 371, which required a technical study reviewed by the fiscal council and approved by the board and management and limited the expected realisation period to ten years, was revoked in 2020. The requirement now comes from CPC 32, and a study with projections remains the usual way to demonstrate the probability the standard calls for.
Law 9,065/1995, arts. 15 and 16 · Decree-Law 2,341/1987, arts. 32 and 33 · CVM Resolution 2/2020
The study starts from the profit projection approved by management and reconciles it with the historical results and with the assumptions of the impairment test, so that the two pieces of work are consistent. It then converts accounting profit into taxable profit, with additions, exclusions and the reversal of temporary differences, and applies the 30% cap period by period.
The result is a yearly realisation schedule for the asset, with sensitivities to the assumptions that move it most and with the portion that should not be recognised when realisation is no longer probable.
The study is prepared by taxable entity, because the Brazilian regime does not allow one company's losses to be offset against another group company's profits. CBG usually conducts it together with the impairment test, with consistent assumptions across both pieces of work and the same closing timetable.
IAS 12 and CPC 32 require the probability of future taxable profit to be demonstrated and reviewed at each reporting date, without prescribing a format. A study with projections is the usual way to demonstrate it, and auditors usually ask for one.
The standard sets no limit. Institutions regulated by the Central Bank of Brazil also follow CMN Resolution 4,842/2020, which requires realisation within ten years. The longer the horizon needed to realise the asset, the greater the uncertainty of the projections and the stronger the evidence required. The former CVM Instruction 371 limited the expected realisation period to ten years.
Yes, provided there are sufficient taxable temporary differences or other convincing evidence of future taxable profit, such as signed contracts, losses from identifiable causes unlikely to recur or tax planning opportunities (paragraphs 29, 35 and 36). In that situation, the company's own projections alone are usually challenged.
It should use assumptions consistent with those of the impairment test. Optimistic projections to support the deferred tax asset and conservative ones for impairment, or the reverse, are an inconsistency that auditors usually point out.
As a rule, 15% IRPJ plus a 10% surcharge on annual taxable income above R$ 240,000, and 9% CSLL, for a combined 34%. Banks, other financial institutions, payment institutions and insurers have their own CSLL rates, some of them already set to rise in 2028 (Complementary Law 224/2025). The asset is measured at the rate expected to apply when it is realised, based on legislation enacted or substantively enacted by the reporting date (paragraph 47).