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Income and Social Contribution Taxes | 12 Months Ended
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Dec. 31, 2020
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Income and Social Contribution Taxes | # 9. Income and s ocial c ontribution t axes 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, mainly resulting from p rovision for differences between cash and accrual basis, tax loss carryforwards, negative tax bases and provisions for tax, civil, and labor risks. Deferred tax assets are sustained by the continued profitability of their operations. Deferred IRPJ and CSLL are recognized under the following main categories:
| 12/31/2020 |  |  | 12/31/2019 |
Assets - deferred income and social contribution taxes on: |  |  |  |  |
Provision for impairment of assets | 75,231 |  |  | 72,377 |
Provisions for tax, civil, and labor risks | 138,516 |  |  | 150,085 |
Provision for post-employment benefits | 96,108 |  |  | 92,199 |
Provision for differences between cash and accrual basis (i) | 606,054 |  |  | 224,065 |
Goodwill | 5,161 |  |  | 8,161 |
Business combination – tax basis vs. accounting basis of goodwill | 75,515 |  |  | 75,745 |
Provision for asset retirement obligation | 15,728 |  |  | 14,762 |
Provision for suppliers | 49,501 |  |  | 35,214 |
Provision for profit sharing and bonus | 56,873 |  |  | 44,818 |
Leases payable | 41,932 |  |  | 19,003 |
Change in fair value of subscription warrants | 22,833 |  |  | 16,338 |
Provision for deferred revenue | 25,770 |  |  | 29,961 |
Other provisions | 14,917 |  |  | 15,355 |
Tax losses and negative basis for social contribution carryforwards (9.d) | 363,862 |  |  | 278,140 |
Total | 1,588,001 |  |  | 1,076,223 |
Offset liability balance of deferred IRPJ and CSLL | (613,290 | ) |  | (422,529 | )
Net balance of deferred taxes assets | 974,711 |  |  | 653,694 |
Liabilities - deferred income and social contribution taxes on: |  |  |  |  |
Revaluation of PP&E | 1,776 |  |  | 1,866 |
Leases payable | 1,895 |  |  | 2,356 |
Provision for differences between cash and accrual basis (i) | 402,780 |  |  | 257,718 |
Provision for goodwill | 92,242 |  |  | 39,186 |
Business combination – fair value of assets | 111,832 |  |  | 114,125 |
Other provisions | 15,497 |  |  | 14,809 |
Total | 626,022 |  |  | 430,060 |
Offset asset balance of deferred IRPJ and CSLL | (613,290 | ) |  | (422,529 | )
Net balance of deferred taxes liabilities | 12,732 |  |  | 7,531 |
(i) Refers mainly to the income tax on the exchange variation of the derivate hedging instruments. Changes in the net balance of deferred IRPJ and CSLL are as follows:
| 2020 |  | 2019 |  | 2018 |
Initial balance | 646,163 |  | 504,890 |  | 530,419 |
Deferred IRPJ and CSLL recognized in income of the year | 87,939 |  | 97,465 |  | (162,417 | )
Deferred IRPJ and CSLL recognized in other comprehensive income | 210,034 |  | 40,497 |  | 133,124 |
Deferred IRPJ and CSLL recognized in business combination | - |  | - |  | 1,054 |
Others | 17,843 |  | 3,311 |  | 2,710 |
Final balance | 961,979 |  | 646,163 |  | 504,890 |
The estimated recovery of deferred tax assets relating to IRPJ and CSLL is stated as follows:
Up to 1 year | 203,341
From 1 to 2 years | 154,684
From 2 to 3 years | 79,646
From 3 to 5 years | 189,231
From 5 to 7 years | 634,200
From 7 to 10 years | 326,899
Total of deferred tax assets relating to IRPJ and CSLL | 1,588,001
In order to evaluate the realization of deferred tax assets, the taxable income projections from business plans of each segment of the Company which indicates trends and perspectives, demand effects, competition and other economic factors, and 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$ 1,588,001 was supported by the technical study on taxable profit projections for the realization of deferred tax assets, examined by the Fiscal Council (“CF”) and by the Audit and Risks Committee (“CAR”). b. Reconciliation of income and social contribution taxes IRPJ and CSLL are reconciled to the statutory tax rates as follows:
| 2020 |  | 2019 |  | 2018 |
Income (loss) before taxes and share of profit (loss) of joint ventures, and associates | 1,542,681 |  | 793,698 |  | 1,785,818 |
Statutory tax rates – % | 34 |  | 34 |  | 34 |
Income and social contribution taxes at the statutory tax rates | (524,512 | ) | (269,857 | ) | (607,178 | )
Adjustments to the statutory income and social contribution taxes: |  |  |  |  |  |
Nondeductible expenses (i) | (74,877 | ) | (68,795 | ) | (82,784 | )
Nontaxable revenues (ii) | 33,552 |  | 28,235 |  | 32,523 |
Adjustment to estimated income (iii) | 8,850 |  | 10,511 |  | 9,706 |
Interest on equity (iv) | - |  | - |  | (538 | )
Unrecorded deferred income and social contribution taxes carryforwards deferred (v) | (123,300 | ) | (146,820 | ) | (95,480 | )
Other adjustments | 24,992 |  | 24,873 |  | (2,634 | )
Income and social contribution taxes before tax incentives | (655,295 | ) | (421,853 | ) | (746,385 | )
Tax incentives - SUDENE | 83,928 |  | 43,244 |  | 107,666 |
Income and social contribution taxes in the income statement | (571,367 | ) | (378,609 | ) | (638,719 | )
Current | (659,306 | ) | (476,074 | ) | (476,302 | )
Deferred | 87,939 |  | 97,465 |  | (162,417 | )
Effective IRPJ and CSLL rates – % | 37.0 |  | 47.7 |  | 35.8 |
(i) | C onsist 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) | C onsist 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$ 7 8 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 pa id 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 i ncentives – 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 | 75 | 2027
| Suape base | 75 | 2027
Terminal Químico de Aratu S.A. – Tequimar | Suape terminal (1) | 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 (2) | Camaçari plant | 75 | 2026
Empresa Carioca de Produtos Químicos S.A. (3) | Camaçari plant | 75 | 2026
(1) | Based on the legislation in force the enterprise belongs to the sectors identified as priorities for the development of the Northeast region of Brazil. C ombined with Tequimar's successful track record in meeting the requirements for maintaining and renewing the incentive, as well as in the fact that several investments have been made in the modernization of the production process of the unit that is the object of the benefit – Suape Terminal, the request for the extension of the incentive for another 10 years will be filed in 2021 at SUDENE. The ren ewal request is usually made in the year after the year in which the incentive expires and generates retroactive effects as of January of the year in which the request is filed.
(2) | The request for renewal of the Oleoquímica incentive will be filed in 2022, for the same reasons described in note 1 above.
(3) | The request to transfer the right to reduce the IRPJ to Oxiteno S.A. was submitted to SUDENE and waits decision.
d. Income and social contribution taxes carryforwards In December 3 1, 20 20, the Company and certain subsidiaries ha d tax loss carryforwards related to income tax (IRPJ) of R$ 1,687,482 (R$ 1,268,964 as of December 31, 201 9) and negative basis of CSLL of R$ 1,689,232 (R$ 1,270,714 as of December 31, 201 9), whose compensations are limited to 30% of taxable income in a given tax year, which do not expire. The balances which are constituted of deferred taxes related to income tax loss carryforwards and negative basis of social contribution base are as follows:
| 12/31/2020 |  | 12/31/2019
Oxiteno S.A. | 205,604 |  | 148,306
Extrafarma | 72,318 |  | 72,318
Ipiranga | 44,537 |  | -
Ultrapar | 27,736 |  | 27,051
Iconic | 5,691 |  |
Abastece Aí | 7,362 |  | -
Tequimar Vila do Conde | 489 |  | 17,657
Ultracargo | 107 |  | -
UVC Investimentos | 18 |  | -
Cia Ultragaz | - |  | 12,808
| 363,862 |  | 278,140
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:
| 12/31/2020 |  | 12/31/2019
Extrafarma | 294,400 |  | 237,664
Millennium | 640 |  | 96
Integra Frotas | 7,802 |  | 4,636
| 302,842 |  | 242,396
In addition, the following foreign subsidiaries that do not have deferred taxes recognized related to income tax, as shown below, subject to local compensation rules.
| 12/31/2020 |  | 12/31/2019 |  | 12/31/2020 |  | 12/31/2019
| US$ (thousands) |  | US$ (thousands) |  | R$ (thousands) |  | R$ (thousands)
Oxiteno USA | 217,837 |  | 184,781 |  | 1,132,035 |  | 744,797
Oxiteno Uruguai | 7,943 |  | 7,444 |  | 41,279 |  | 30,005
Ultrapar International | 6,261 |  | 10,420 |  | 32,535 |  | 42,000
| 232,041 |  | 202,645 |  | 1,205,849 |  | 816,802

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