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INCOME AND SOCIAL CONTRIBUTION TAXES

12 Months Ended

Dec. 31, 2021

INCOME AND SOCIAL CONTRIBUTION TAXES

12.	INCOME AND SOCIAL CONTRIBUTION TAXES

12.1.

Deferred taxes

The Company calculates income tax and social contribution taxes, current and deferred, based on the rates of 15% plus an additional 10% on taxable income in excess of R$240 for IRPJ and 9% for CSLL, on the net income. Balances are recognized in the Company's income on the accrual basis.

Associates located in Brazil have their taxes calculated and provisioned in accordance with current legislation and their specific tax regime, including, in some cases, presumed profit method. The associates located abroad are taxed in their respective jurisdictions, according to local regulations.

Deferred income and social contribution taxes are recognized at the net amounts in non-current assets or liabilities.

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 associate, 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 year 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 associate 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 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 year ended December 31, 2021. There is no provision for tax related to the profit of such associate in 2021.

12.1.1.

Deferred income and social contribution taxes


	December 31,	December 31,
	2021	2020
Tax loss	1,156,876	1,013,008
Negative tax basis of social contribution	411,074	329,412

Assets temporary differences
Provision for judicial liabilities	249,345	233,100
Operating provisions and other losses	965,130	1,051,096
Exchange rate variation	6,555,202	6,112,906
Derivatives losses (“MtM”)	2,193,693	2,303,833
Amortization of fair value adjustment on business combination	699,535	718,645
Unrealized profit on inventories	298,888	176,847
Leases	373,372	287,066
Provision of deferred taxes on results of associates abroad		33,893
Other temporary differences ⁽¹⁾		158,172
	12,903,115	12,417,978

Liabilities temporary differences
Goodwill - Tax benefit on unamortized goodwill	746,489	469,875
Property, plant and equipment - deemed cost	1,316,859	1,385,642
Accelerated tax depreciation	944,949	1,025,136
Borrowing cost	99,399	110,036
Fair value of biological assets	430,966	237,879
Deferred taxes, net of fair value adjustment	427,313	469,419
Tax credits - gains in tax lawsuit (exclusion of ICMS from the PIS and COFINS contribution tax basis)	198,027	43,559
Other temporary differences	9,184
	4,173,186	3,741,546

Non-current assets	8,729,929	8,677,002
Non-current liabilities		570

On December 29, 2020, with the final decision of Administrative Council for Economic Defense's ("CADE") approval, related to the purchase and sale agreement of rural property, Management and legal advisors understand that all conditions suspensive were implemented, with the tax recognition of capital gain being required, pursuant to art. 117 of the National Taxation Code ("CTN"). As the accounting recognition only occurred at the Closing of the transaction, on January 5, 2021 (Note 1.2.2) with the fulfillment of the performance obligation and delivery of the ownership of the properties to the client, there was a need to establish the deferred tax asset on this difference temporary, in the amount of R$175,202.

Except for tax loss carryforwards, the negative basis of social contribution and accelerated depreciation, which are only achieved by the Income Tax ("IRPJ"), other tax bases were subject to both taxes.

12.1.2.

Breakdown of accumulated tax losses and social contribution tax loss carryforwards


	December 31,	December 31,
	2021	2020
Tax loss carry forward	4,627,504	4,052,013
Negative tax basis of social contribution carryforward	4,567,489	3,660,133

12.1.3.

Rollforward of deferred tax assets


	December 31,	December 31,
	2021	2020
Beginning balance	8,676,432	1,555,165
Tax loss	143,868	412,759
Negative tax basis of social contribution	81,662	183,066
Provision (Reversal) for judicial liabilities	16,245	(32,471)
Operating provision (reversal) and other losses	(53,467)	136,400
Exchange rate variation	442,296	4,110,964
Derivative (gains) losses (“MtM”)	(110,140)	1,685,406
Amortization of fair value adjustment on business combination	22,996	37,917
Unrealized profit on inventories	122,041	(116,475)
Lease	86,306	265,022
Goodwill - Tax benefit on unamortized goodwill	(276,614)	(253,018)
Property, plant and equipment - deemed cost	68,783	120,578
Accelerated tax depreciation	80,187	88,064
Borrowing cost	10,637	(5,487)
Fair value of biological assets	(225,586)	(184,377)
Deferred taxes on the result of associates abroad (1)	(33,893)	497,743
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis) (Note 20.3)	(154,468)
Other temporary differences (2)	(167,356)	175,176
Ending balance	8,729,929	8,676,432

On December 31, 2020, amount reversed as a result of a favorable judgement entered for Company, which ensured Company's right to calculate and pay the Corporate Income Tax and Social Contribution on Net Income due in Brazil, without adding to its taxable base the profit earned as of January 2019 by its wholly-owned subsidiary Suzano International Trade GmbH (former Fibria International Trade GmbH), in accordance with the terms of the Brazil-Austria Double Taxation Treaty, either with regard to the merged company Fibria Celulose SA (wholly-owned subsidiary merged on April 1, 2019) in relation to the 1st quarter 2019 base period early terminated due to the merger, either with respect to the subsequent calculation base periods when Suzano International Trade GmbH was already a subsidiary of the Company.

On December 29, 2020, with the final decision of CADE's approval related to the purchase and sale agreement of rural property (Note 1.2.2), Management and legal advisors understand that all conditions suspensive were implemented, with the tax recognition of capital gain being required, pursuant to art. 117 of the National Taxation Code (“CTN”). As the accounting recognition occurred at the Closing of the Transaction, on January 5, 2021 (Note 1.2.2) with the fulfillment of the performance obligation and delivery of the ownership of the properties to the client, there was a need to establish the deferred tax asset on this difference temporary, in the amount of R$175,202.

12.2.

Reconciliation of the effects of income tax and social contribution on profit or loss


	December 31,		December 31,		December 31,
	2021		2020		2019
Net income (loss) before taxes	8,832,957		(17,642,129)		(4,097,203)
Income tax and social contribution benefit (expense) at statutory nominal rate of 34%	(3,003,205)		5,998,324		1,393,049

Tax effect on permanent differences
Taxation (difference) on profit of associates in Brazil and abroad ⁽¹⁾	3,445,206		1,373,845		(24,933)
Equity method	44,309		12,288		10,878
Thin capitalization ⁽²⁾	(603,612)		(675,356)		(95,003)
Credit related to Reintegra Program	7,398		6,278		4,515
Tax incentives ⁽³⁾	16,443		10,668		18,919
Director bonus	(15,656)		(7,677)		(43,913)
Offset income tax abroad			72,890
Merger of subsidiaries			67,311
Donations / Fines - Other	(88,308)		68,623		18,949
	(197,425)		6,927,194		1,282,461
Income tax
Current	(276,431)		(173,322)		(220,311)
Deferred	69,669		5,225,655		1,093,200
	(206,762)		5,052,333		872,889
Social Contribution
Current	(15,684)		(8,604)		(25,799)
Deferred	25,021		1,883,465		435,371
	9,337		1,874,861		409,572
Income and social contribution benefits (expenses) on the year	(197,425)		6,927,194		1,282,461

Effective rate of income and social contribution tax expenses	2.24	%	39.27	%	31.30	%

1)	The effect of the difference in taxation of associates is substantially due to the difference between the nominal rates of Brazil and associates abroad.

The Brazilian thin capitalization rules establish that interest paid or credited by a Brazilian entity to a related party abroad may only be deducted for income tax and social contribution 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 December 31, 2021 the Company did not meet all limits and requirements therefore the expense is not deductible for the period.

Income tax and social contribution deduction on profit or loss referring to the use of the (i) expenses with research and development (ii) PAT benefit ("Worker Food Program"), (iii) donations made in cultural projects, audiovisual, (iv) child and adolescent rights funds, and (v) extension of maternity and paternity leave.

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 Superintendence (“SUDENE”) in the Mucuri (BA), Eunápolis - Veracel (BA), Imperatriz (MA) and Aracruz - Portocel (ES) regions and in areas of the Superintendence of the Amazon Development ("SUDAM") in the Belém (PA) 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, Eunápolis - Veracel (BA) and Belém (PA) facility, expire in 2025 and Aracruz – Portocel (ES), expire in 2030.