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INCOME AND SOCIAL CONTRIBUTION TAXES | 6 Months Ended
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Jun. 30, 2020
INCOME AND SOCIAL CONTRIBUTION TAXES |
INCOME AND SOCIAL CONTRIBUTION TAXES | 12.INCOME AND SOCIAL CONTRIBUTION TAXES The Company and its wholly-owned subsidiaries located in Brazil are subject to the tax regime based on taxable income. The wholly-owned subsidiaries located abroad are taxed in their respective jurisdictions, according to local regulations. In Brazil, the Law nº. 12,973/14 revoked article 74 of Provisional Measure nº.2,158/01 and determines that the parcel of the adjustment of the value of the investment in wholly-owned subsidiary, direct and indirect, located abroad, equivalent to the profit earned by it before income tax, except for exchange rate variation, must be added in the determination of taxable income and the social contribution calculation basis of the controlling entity located in Brazil, at the each period ended. Management’s Company believes on the validity of the provisions of international treaties entered into Brazil to avoid double taxation. In order to guarantee its right to non-double taxation, the Company filed a lawsuit in April 2019, which aims at a non-double taxation, in Brazil, of profit earned by its wholly-owned subsidiary located in Austria, according to Law n°. 12,973/14. Due to the preliminary injunction granted in favor of the Company in the records of the aforementioned lawsuit, the Company decided to not to add the profit from Suzano International Trading GmbH, located in Austria, in determining of taxable income and social contribution basis of the net profit of the Company for the six-month period ended June 30, 2020. There is no provision for tax related to the profit of such wholly-owned subsidiary in 2020. 12.1.Deferred income and social contribution taxes
|  | June 30, |  | December 31,
|  | 2020 |  | 2019
Tax loss carryforwards |  | 772,460 |  | 600,249
Negative tax base |  | 226,230 |  | 146,346
Provision for judicial liabilities |  | 255,947 |  | 265,571
Operating provisions and other losses |  | 908,399 |  | 914,696
Exchange rate variation (1) |  | 7,418,386 |  | 2,001,942
Losses on derivatives (“MtM”) (1) |  | 3,678,024 |  | 618,427
Fair value adjustment on business combination – Amortization |  | 713,180 |  | 713,656
Unrealized profit on inventories |  | 357,240 |  | 293,322
Lease |  | 330,669 |  | 22,044
Assets temporary differences |  | 14,660,535 |  | 5,576,253
Goodwill - Tax benefit on unamortized goodwill |  | 351,107 |  | 216,857
Property, plant and equipment - deemed cost adjustment |  | 1,487,102 |  | 1,506,220
Accelerated tax depreciation |  | 1,068,735 |  | 1,113,200
Borrowing cost |  | 118,071 |  | 104,549
Fair value of biological assets |  | 123,668 |  | 53,502
Tax provision on results of subsidiaries abroad |  | 585,516 |  | 463,850
Fair value adjustment on business combination – Deferred taxes, net |  | 485,994 |  | 502,347
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis) |  | 43,559 |  | 43,559
Other temporary differences |  | 17,491 |  | 17,004
Liabilities temporary differences |  | 4,281,243 |  | 4,021,088
Non-current assets |  | 10,454,646 |  | 2,134,040
Non-current liabilities |  | 75,354 |  | 578,875
1)The variation is due to the increase in the exchange rate in the six-month period ended June 30, 2020. Except for tax loss carryforwards, the negative basis of social contribution and accelerated depreciation are only achieved by the Income Tax (“IRPJ”), other tax bases were subject to both taxes. The breakdown of accumulated tax losses and social contribution tax loss carryforwards is set forth below:
|  | June 30, |  | December 31,
|  | 2020 |  | 2019
Tax loss carry forward |  | 3,089,840 |  | 2,400,998
Social contribution tax loss carryforward |  | 2,513,672 |  | 1,626,064
The rollforward of net balance of deferred income tax is set for the below:
|  | June 30, |  | December 31,
|  | 2020 |  | 2019
Beginning balance |  | 1,555,165 |  | (1,029,135)
Business combination |  | — |  | 1,034,842
Tax loss |  | 172,211 |  | 270,559
Tax loss carryforwards |  | 79,884 |  | 139,719
(Reversal)/provision for judicial liabilities |  | (9,624) |  | 31,262
Operating provisions and other losses |  | (6,297) |  | (21,757)
Exchange rate variation (1) |  | 5,416,444 |  | 552,421
Derivative losses (“MtM”)(1) |  | 3,059,597 |  | 319,860
Fair value adjustment on business combination – Amortization |  | 15,879 |  | 699,527
Unrealized profit on inventories |  | 63,918 |  | 65,492
Lease |  | 308,625 |  | (3,274)
Tax benefit on unamortized goodwill |  | (134,250) |  | (203,696)
Property, plant and equipment - Deemed cost |  | 19,118 |  | 46,359
Accelerated depreciation |  | 44,465 |  | 82,982
Borrowing cost |  | (13,522) |  | 44,727
Fair value of biological assets |  | (70,166) |  | (60,778)
Tax provision on results of subsidiaries abroad |  | (121,666) |  | (351,485)
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis) |  | — |  | (43,559)
Other temporary differences |  | (489) |  | (18,901)
Ending balance |  | 10,379,292 |  | 1,555,165
1)The variation is due to the increase in the exchange rate in the six-month period ended June 30, 2020. 12.2.Reconciliation of the effects of income tax and social contribution on profit or loss
|  | June 30, |  | June 30, |
|  | 2020 |  | 2019 |
Loss before taxes |  | (24,236,648) |  | (789,205) |
Income tax and social contribution benefit (expense) at statutory nominal rate of 34% |  | 8,240,460 |  | 268,330 |
Tax effect on permanent differences |  |  |  |  |
Taxation (difference) on profit of wholly-owned subsidiaries abroad (1) |  | 746,640 |  | 21,301 |
Tax incentive - Reduction SUDENE (2) |  | — |  | 23,216 |
Equity method |  | (1,004) |  | (1,893) |
Thin capitalization (3) |  | (252,808) |  | (50,437) |
Credit related to Reintegra Program |  | 3,367 |  | 2,988 |
Tax incentives applicable to income tax (4) |  | 3,925 |  | 3,247 |
Director bonus |  | (5,508) |  | (42,682) |
Donations / Fines - Other |  | 29,997 |  | 35,851 |
|  | 8,765,069 |  | 259,921 |
Income tax |  |  |  |  |
Current |  | (57,006) |  | (113,570) |
Deferred |  | 6,486,044 |  | 299,726 |
|  | 6,429,038 |  | 186,156 |
Social Contribution |  |  |  |  |
Current |  | (823) |  | (78,008) |
Deferred |  | 2,336,854 |  | 151,773 |
|  | 2,336,031 |  | 73,765 |
Income and social contribution benefits (expenses) on the period |  | 8,765,069 |  | 259,921 |
Effective rate of income and social contribution tax expenses |  | 36.16 | % | 32.93 | %
1)The effect of the difference in taxation of subsidiaries is substantially due to the difference between the nominal rates of Brazil and subsidiaries abroad. 2)Benefit used to reduce 75% of the tax calculated based on the operating profit of the Mucuri / BA and Imperatriz / MA facilities. 3)The Brazilian thin capitalization rules establish that interest paid or credited by a Brazilian entity to a related party may only be deducted for income tax purposes if the interest expense is viewed as necessary for the activities of the local entity and when determined limits and requirements are met. On June 30, 2020 the Company did not meet all limits and requirements, therefore a provision for tax payment was recorded. 4)Income tax deduction amount referring to the use of the PAT (“Worker Feeding Program”) benefit and donations made in cultural and sports projects. 12.3.Tax incentives Company has a tax incentive for the partial reduction of the income tax obtained by the operations carried out in areas of the Northeast Development Superintendency (“SUDENE”) in the Mucuri (BA), Eunápolis – Veracel (BA) and Imperatriz (MA) regions. The IRPJ reduction incentive is calculated based on the activity profit (exploitation profit) and considers the allocation of the operating profit by the incentive production levels for each product. The incentive of lines 1 and 2 of Mucuri (BA) facility expire, respectively, in 2024 and 2027, Imperatriz facility expire in 2024 and Eunápolis – Veracel (BA) facility expire in 2025.

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