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Income and Social Contribution Taxes | 12 Months Ended
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Dec. 31, 2019
Text block [abstract] |
Income and Social Contribution Taxes | 9. Income and Social Contribution Taxes a. Deferred Income (IRPJ) and Social Contribution Taxes (CSLL) The Company and its subsidiaries recognize deferred tax assets and liabilities, which are not subject to the statute of limitations, resulting from tax loss carryforwards, temporary differences, negative tax bases and revaluation of PP&E, among others. Deferred tax assets are sustained by the continued profitability of their operations. Deferred IRPJ and CSLL are recognized under the following main categories:
|  | 12/31/2019 |  |  | 12/31/2018 |
Assets—Deferred income and social contribution taxes on: |  |  |  |  |  |  |  |
Provision for impairment of assets |  |  | 72,377 |  |  |  | 116,191 |
Provisions for tax, civil, and labor risks |  |  | 150,085 |  |  |  | 154,516 |
Provision for post-employment benefits |  |  | 92,199 |  |  |  | 85,575 |
Provision for differences between cash and accrual basis (*) |  |  | 224,065 |  |  |  | 147,376 |
Goodwill |  |  | 8,161 |  |  |  | 12,258 |
Business combination – tax basis vs. accounting basis of goodwill |  |  | 75,745 |  |  |  | 75,838 |
Provision for asset retirement obligation |  |  | 14,762 |  |  |  | 15,801 |
Provision for suppliers |  |  | 35,214 |  |  |  | 38,339 |
Provision for profit sharing and bonus |  |  | 44,818 |  |  |  | 49,621 |
Leases payable |  |  | 19,003 |  |  |  | — |
Change in fair value of subscription warrants |  |  | 16,338 |  |  |  | 13,700 |
Other provisions |  |  | 45,316 |  |  |  | 42,694 |
Tax losses and negative basis for social contribution carryforwards (d) |  |  | 278,140 |  |  |  | 208,036 |
Total |  |  | 1,076,223 |  |  |  | 959,945 |
Offset the liability balance of deferred IRPJ and CSLL |  |  | (422,529 | ) |  |  | (445,758 | )
Net balance of deferred taxes assets |  |  | 653,694 |  |  |  | 514,187 |
Liabilities—Deferred income and social contribution taxes on: |  |  |  |  |  |  |  |
Revaluation of PP&E |  |  | 1,866 |  |  |  | 1,981 |
Lease payable |  |  | 2,356 |  |  |  | 2,858 |
Provision for differences between cash and accrual basis (*) |  |  | 257,718 |  |  |  | 138,332 |
Provision for goodwill |  |  | 39,186 |  |  |  | 187,845 |
Business combination – fair value of assets |  |  | 114,125 |  |  |  | 117,352 |
Other provisions |  |  | 14,809 |  |  |  | 6,687 |
Total |  |  | 430,060 |  |  |  | 455,055 |
Offset the asset balances of deferred IRPJ and CSLL |  |  | (422,529 | ) |  |  | (445,758 | )
Net balance of deferred taxes liabilities |  |  | 7,531 |  |  |  | 9,297 |
(*) | Refers mainly to the income tax on the exchange variation of the hedging instruments.
Changes in the net balance of deferred IRPJ and CSLL are as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Initial balance |  |  | 504,890 |  |  |  | 530,419 |  |  |  | 451,973 |
Deferred IRPJ and CSLL recognized in income of the year |  |  | 97,465 |  |  |  | (162,417 | ) |  |  | 109,204 |
Deferred IRPJ and CSLL recognized in other comprehensive income |  |  | 40,497 |  |  |  | 133,124 |  |  |  | 13,389 |
Deferred IRPJ and CSLL recognized in business combination |  |  | — |  |  |  | 1,054 |  |  |  | (45,728 | )
Others |  |  | 3,311 |  |  |  | 2,710 |  |  |  | 1,581 |
Final balance |  |  | 646,163 |  |  |  | 504,890 |  |  |  | 530,419 |
The estimated recovery of deferred tax assets relating to IRPJ and CSLL is stated as follows:
Up to 1 Year |  |  | 178,127 |
From 1 to 2 Years |  |  | 54,814 |
From 2 to 3 Years |  |  | 141,105 |
From 3 to 5 Years |  |  | 136,029 |
From 5 to 7 Years |  |  | 353,806 |
From 7 to 10 Years |  |  | 212,342 |
Total of deferred tax assets relating to IRPJ and CSLL |  |  | 1,076,223 |
In order to evaluate the realization of deferred tax assets, the taxable income projections from business plans of each segment of the Company, approved by Company’s Board of Directors, which indicates trends and perspectives, demand effects, competition and other economic factors that represent the management’s best estimate about the economic conditions existing during the period of realization of the deferred tax asset were taken into account. The main key assumptions used to calculate the realization of deferred tax assets are: growth in Gross Domestic Product (“GDP”), exchange rate, basic interest rate (SELIC) and DI, inflation rate, commodity price index, among others. The balance of R$ 1,076,223 was supported by the technical study on taxable income projections for the realization of deferred tax assets, reviewed by the Fiscal Council and by the Audit and Risks Committee and approved by Company’s Board of Directors. b. Reconciliation of Income and Social Contribution Taxes IRPJ and CSLL are reconciled to the statutory tax rates as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Income before taxes and share of profit (loss) of subsidiaries, joint ventures, and associates |  |  | 793,698 |  |  |  | 1,785,818 |  |  |  | 2,318,446 |
Statutory tax rates - % |  |  | 34 |  |  |  | 34 |  |  |  | 34 |
Income and social contribution taxes at the statutory tax rates |  |  | (269,857 | ) |  |  | (607,178 | ) |  |  | (788,272 | )
Adjustments to the statutory income and social contribution taxes: |  |  |  |  |  |  |  |  |  |  |  |
Nondeductible expenses (i) |  |  | (68,795 | ) |  |  | (82,784 | ) |  |  | (105,017 | )
Nontaxable revenues (ii) |  |  | 28,235 |  |  |  | 32,523 |  |  |  | 19,084 |
Adjustment to estimated income (iii) |  |  | 10,511 |  |  |  | 9,706 |  |  |  | 10,844 |
Interest on equity (iv) |  |  | 0 |  |  |  | (538 | ) |  |  | (550 | )
Unrecorded deferred Income and Social Contribution Taxes Carryforwards deferred (v) |  |  | (146,820 | ) |  |  | (95,480 | ) |  |  | — |
Other adjustments |  |  | 24,873 |  |  |  | (2,634 | ) |  |  | 2,059 |
Income and social contribution taxes before tax incentives |  |  | (421,853 | ) |  |  | (746,385 | ) |  |  | (861,852 | )
Tax incentives—SUDENE |  |  | 43,244 |  |  |  | 107,666 |  |  |  | 48,598 |
Income and social contribution taxes in the income statement |  |  | (378,609 | ) |  |  | (638,719 | ) |  |  | (813,254 | )
Current |  |  | (476,074 | ) |  |  | (476,302 | ) |  |  | (922,458 | )
Deferred |  |  | 97,465 |  |  |  | (162,417 | ) |  |  | 109,204 |
Effective IRPJ and CSLL rates - % |  |  | 47.7 |  |  |  | 35.8 |  |  |  | 35.1 |
(i) | Consist of certain expenses that cannot be deducted for tax purposes under applicable tax legislation, such as expenses with fines, donations, gifts, losses of assets, negative effects of foreign subsidiaries and certain provisions;
(ii) | Consist of certain gains and income that are not taxable under applicable tax legislation, such as the reimbursement of taxes and the reversal of certain provisions;
(iii) | Brazilian tax law allows for an alternative method of taxation for companies that generated gross revenues of up to R$ 78 million in their previous fiscal year. Certain subsidiaries of the Company adopted this alternative form of taxation, whereby income and social contribution taxes are calculated on a basis equal to 32% of operating revenues, as opposed to being calculated based on the effective taxable income of these subsidiaries. The adjustment to estimated income represents the difference between the taxation under this alternative method and the income and social contribution taxes that would have been paid based on the effective statutory rate applied to the taxable income of these subsidiaries;
(iv) | Interest on equity is an option foreseen in Brazilian corporate law to distribute profits to shareholders, calculated based on the long-term interest rate (“TJLP”), which does not affect the income statement, but is deductible for purposes of IRPJ and CSLL, being taxable to the beneficiary and deductible to the entity that pays;
(v) | See Note 9.d.
c. Tax Incentives—SUDENE The following subsidiaries are entitled to federal tax benefits providing for IRPJ reduction under the program for development of northeastern Brazil operated by the Superintendence for the Development of the Northeast (“SUDENE”), as shown below:
Subsidiary |  | Units |  | Incentive - % |  | Expiration
Bahiana Distribuidora de Gás Ltda. |  | Mataripe base |  | 75 |  | 2024
|  | Caucaia base |  | 75 |  | 2025
|  | Juazeiro base |  | 75 |  | 2026
|  | Aracaju base (1) |  | 75 |  | 2027
|  | Suape base (2) |  | 75 |  | 2027
Terminal Químico de Aratu S.A. – Tequimar |  | Suape terminal |  | 75 |  | 2020
|  | Aratu terminal |  | 75 |  | 2022
|  | Itaqui terminal |  | 75 |  | 2025
Oleoquímica Indústria e Comércio de Produtos Químicos Ltda. |  | Camaçari plant |  | 75 |  | 2021
Oxiteno S.A. Indústria e Comércio (3) |  | Camaçari plant |  | 75 |  | 2026
Empresa Carioca de Produtos Químicos S.A. |  | Camaçari plant |  | 75 |  | 2026
(1) | The subsidiary Bahiana Distribuidora de Gás Ltda. (“Bahiana”), obtained 75% income tax reduction incentive recognized by SUDENE, through an appraisal report on October 22, 2018, until 2027, due to the modernization for its Aracaju plant – Sergipe. Due to the tacit approval by the RFB the constitutive benefit appraisal report the subsidiary recognized income tax reduction retroactive effect in January 2018 in the amount of R$ 1,067.
(2) | The subsidiary Bahiana had the 75% income tax reduction incentive recognized by SUDENE, through an appraisal report on January 14, 2019, until 2027, due to the modernization for its Suape plant – Pernambuco. The constitutive benefit appraisal report was approved in May 2019 by the RFB.
(3) | The request to transfer the right to reduce the IRPJ to Oxiteno S.A. will be submitted to SUDENE due to the incorporation of the subsidiary Oxiteno Nordeste.
d. Income and Social Contribution Taxes Carryforwards In December 31, 2019, the Company and certain subsidiaries had tax loss carryforwards related to income tax (IRPJ) of R$ 1,268,964 (R$ 873,718 as of December 31, 2018) and negative basis of CSLL of R$ 1,270,714 (R$ 876,315 as of December 31, 2018), whose compensations are limited to 30% of taxable income in a given tax year, which do not expire. In addition, certain offshore subsidiaries had tax loss carryforwards of R$ 878,470 (R$ 620,906 as of December 31, 2018). The balances which are constituted of deferred taxes related to income tax loss carryforwards and negative basis of social contribution base are as follows:
|  | 12/31/2019 |  |  | 12/31/2018 |
Cia. Ultragaz |  |  | 12,808 |  |  |  | 37,332 |
Oxiteno S.A. |  |  | 148,306 |  |  |  | 43,645 |
Iconic |  |  | 17,657 |  |  |  | 28,256 |
Extrafarma |  |  | 72,318 |  |  |  | 98,803 |
Ultrapar |  |  | 24,632 |  |  |  | — |
Ultrapar International |  |  | 2,419 |  |  |  | — |
|  |  | 278,140 |  |  |  | 208,036 |
The technical study of the realization of deferred tax assets was approved by the Company’s CA, according Note 9.a. The balances which are not constituted of deferred taxes related to income tax loss carryforwards and negative basis of social contribution base are as follows:
|  | 12/31/2019 |  |  | 12/31/2018 |
Extrafarma |  |  | 237,664 |  |  |  | 94,115 |
Integra Frotas |  |  | 4,636 |  |  |  | 1,365 |
Oxiteno Argentina |  |  | 0 |  |  |  | 22 |
Oxiteno USA |  |  | 127,992 |  |  |  | 124,864 |
Oxiteno Andina |  |  | 0 |  |  |  | 466 |
|  |  | 370,292 |  |  |  | 220,832 |

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