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PROVISION FOR TAX, CIVIL AND LABOR RISKS
 12 Months Ended
Dec. 31, 2021
PROVISION FOR TAX, CIVIL AND LABOR RISKS

 

20.PROVISION FOR TAX, CIVIL AND LABOR RISKS

The Company and its subsidiaries are involved in certain legal matters arising in the normal course of business, which include civil, tax, social security, labor, commercial and other processes.

Company’s Management believes that, based on the elements existing at the base date of these consolidated financial statements, the provision for tax, civil, labor, commercial and other risks, is sufficient to cover eventual losses with administrative and legal proceedings, as set forth below.

The rollforward of the provisions for tax, labor, civil, commercial and other risks classified as with probable loss, and contingent liabilities is presented below:

                                       
  Tax   Labor   Civil, commercial and other   Contingent liabilities (1)   Total
  12.31.21   12.31.20   12.31.21   12.31.20   12.31.21   12.31.20   12.31.21   12.31.20   12.31.21   12.31.20
Beginning balance      427,302        583,464        634,706        603,074        343,530        307,177        297,182        300,654        1,702,720        1,794,369
Additions      174,491        103,773        301,192        435,723          60,561          52,961                  -                  -           536,244           592,457
Business combination (note 1.2)         2,848                  -           1,969                  -           2,217                  -          33,891                  -            40,925                     -
Reversals    (100,438)      (246,499)      (187,520)      (250,029)        (71,275)        (34,556)      (199,311)          (3,464)         (558,544)         (534,548)
Payments    (165,578)        (70,699)      (282,956)      (298,599)        (70,304)        (29,889)                  -                  -         (518,838)         (399,187)
Interest        61,493          57,275        163,020        144,516          92,438          47,818                  -                  -           316,951           249,609
Exchange rate variation             (17)               (12)          (1,644)                21             (154)                19               (11)                (8)             (1,826)                   20
Ending balance      400,101        427,302        628,767        634,706        357,013        343,530        131,751        297,182        1,517,632        1,702,720
                                       
Current                                         959,132           865,338
Non-current                                         558,500           837,382
(1)Contingent liabilities recognized at fair value as of the acquisition date, arising from the business combination with Sadia, Hercosul (note 1.2.2) and Mogiana (note 1.2.3).

 

20.1.Contingencies with probable losses
20.1.1.Tax

The tax contingencies classified as probable losses relate to the following main legal proceedings:

ICMS: The Company is involved in administrative and judicial disputes related to the ICMS tax arising from credits on the acquisition of goods for consumption, presumed credit, tax substitution, isolated fines, tax rate differential on seasoned product and others, in the amount of R$71,928 (R$248,560 as of December 31, 2020).

PIS and COFINS: The Company is involved in administrative and judicial disputes related to the use of certain tax credits arising from the acquisition of supplies to offset federal taxes payable, in the amount of R$141,729 (R$149,945 as of December 31, 2020).

Other tax contingencies: The Company has other provisions for tax claims related to the payment of social security contribution, INCRA, FUNRURAL, SESI/SENAI/SEBRAE, debts included in the government regularization program (REFIS) with deposits awaiting consolidation and conversion into payment, differences in supplementary fiscal obligations, disputes related to presumed IPI credit, import taxes, IOF, Finsocial and others, in the amount of R$186,444 (R$75,360 as of December 31, 2020).

20.1.2.Labor

The Company is defendant in several labor claims either filed by individuals or by the Public Prosecutors Office, mainly related to overtime, thermal rest, unhealthy environment, occupational accidents, among others. None of these claims is individually significant. The Company recorded a provision based on past history of payments, statistical models and on prognosis of loss.

20.1.3.Civil, commercial and others

Civil, commercial and other contingencies are mainly related to litigations containing allegations of contractual breaches and noncompliance of legal obligations of several natures as disputes arising from contracts in general, intellectual property disputes, regulatory issues, environmental and real state, consumer relations, among others. The claims are mostly for compensation of losses and damages, application of penalties and compliance with obligations to do or not to do. None of these claims is individually significant.

20.2.Contingencies with possible losses

The Company is involved in contingencies for which losses are possible, in accordance with the assessment prepared by Management with support from legal advisors. On December 31, 2021, the total amount of contingencies classified as possible was R$14,518,170 (R$14,257,611 as of December 31, 2020), of which solely the ones arising from the business combination with Sadia, Hercosul and Mogiana are provisioned, measured by the estimated fair value at the business combination date: R$131,751 (R$297,182 as of December 31, 2020). The remaining possible contingencies are presented below.

20.2.1.Tax

The tax contingencies for which losses have been assessed as possible amounted to R$12,499,764 as of December 31, 2021 (R$12,536,528 as of December 31, 2020). The most relevant cases are set forth below:

PIS and COFINS: The Company is involved in administrative and judicial disputes related to the non-cumulative system due to divergence on the concept of input and the use in the productive process, the requirement of taxation of revenues related to presumed ICMS credits, disputes on the fiscal classification of seasoned meats, Laws 2.445/88 and 2.449/88 (“semestralidade”), untimely credits and others, in the amount of R$6,371,171 (R$5,549,431 as of December 31, 2020).

ICMS: The Company is involved in disputes related to: (i) non-acceptance of ICMS credits in interstate sales from states that unilaterally granted fiscal benefits without the approval of the National Finance Policy Council (“CONFAZ”), the so-called “guerra fiscal” in the amount of R$253,765 (R$416,238 as of December 31, 2020); (ii) lack of evidence of exports in the amount of R$63,361 (R$265,590 as of December 31, 2020);(iii) infraction notices from State of Rio de Janeiro related to the supposed non-compliance of Agreement Terms (“TARE”) regarding tax benefits, in the amount of R$567,903 (R$550,367 as of December 31, 2020); (iv) Public Civil Action in Rio de Janeiro due do the use of tax benefits, in the amount of R$249,715 (R$239,845 as of December 31, 2020); (v) infraction notice about ICMS in Goiás related to the exclusion of the reversal of the tax credit from the calculation base of PROTEGE, in the amount of R$184,300 (R$105,866 as of December 31, 2020); and (vi) R$2,063,603 (R$2,228,462 on December 31, 2020) related to other claims. The relevant reduction in the amounts related to (i) “guerra fiscal”, is mainly due to the recognition of the credits by the state of São Paulo, for which the probability of loss has been changed to remote; and (ii) lack of evidence of exports, due to the termination of proceedings in which the Company provided evidence that was accepted by the fiscal authority.

Income Tax and Social Contribution (IRPJ and CSLL): The Company is involved in administrative and judicial disputes related to refunds and compensation of negative income tax and social contribution balances, including credits arising from the Plano Verão and requirement of IRPJ and CSLL related to the compensation of tax loss carryforwards above the limit of 30% in the incorporation of entities. The contingencies related to these taxes totaled R$1,326,862 (R$1,249,062 as of December 31, 2020).

Profits earned abroad: The Company was assessed by the Brazilian Federal Revenue for alleged underpayment of income tax and social contribution on profits earned by its subsidiaries located abroad, in a total amount of R$638,361 (R$629,341 as of December 31, 2020). The Company’s legal defense is based on the facts that the subsidiaries located abroad are subject exclusively to the full taxation in the countries in which they are based as a result of the treaties signed to avoid double taxation.

IPI: The Company disputes administratively and judicially the denial of compensation of presumed IPI credits resulting from purchases of duty-free goods and secondary items. Such discussed cases totaled the amount of R$182,246 (R$209,314 as of December 31, 2020).

Social security taxes: The Company disputes cases related to the charges of social security on payroll, employees profit sharing, GILRAT additional for special retirement financing, SAT/RAT, as well as other cases, in a total amount of R$417,903 (R$418,957 as of December 31, 2020).

Other contingencies: The Company disputes cases related to the requirement of 50% fine on the compensations of PIS, COFINS and IRPJ not approved awaiting final decision of the compensation processes, drawback proof, tax on services and others of several natures, fees, property tax, import tax and IOF, totaling R$180,574 (R$674,055 as of December 31, 2020). The reduction in the year ended December 31, 2021 is mainly due to the development in the proceedings related to isolated fine on denial of tax credits compensation, for which the probability of loss was reviewed and classified as remote.

20.2.2.Labor

On December 31, 2021 the labor contingencies assessed as possible loss totaled R$338,999 (R$197,097 as of December 31, 2020).

20.2.3.Civil, commercial and others

Civil commercial and other contingencies for which losses were assessed as possible totaled R$1,679,407 (R$1,523,987 as of December 31, 2020) and are mainly related to litigations containing allegations of contractual breaches and noncompliance of legal obligations of several natures as disputes arising from contracts in general, intellectual property disputes, regulatory issues, environmental and real state, consumer relations, among others. The claims are mostly for compensation of losses and damages, application of penalties and obligations to do or not to do.

Additionally, see the development of the processes described in the note 1.5.