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DEFERRED INCOME TAXES
 12 Months Ended
Dec. 31, 2021
DEFERRED INCOME TAXES

10.DEFERRED INCOME TAXES
10.1.Breakdown

 

Schedule of deferred income and social contribution taxes

  12.31.21   12.31.20
Assets      
Tax losses carryforward        2,822,754          2,060,846
Negative calculation basis (social contribution)        1,046,574            772,283
       
Temporary differences - Assets      
Provisions for tax, civil and labor risks          458,229            458,019
Expected credit losses          184,643            194,977
Impairment on tax credits            64,297              67,900
Provision for other obligations          150,609            115,959
Employees' profit sharing            47,227              86,752
Write-down to net realizable value of inventories            27,934              19,189
Employees' benefits plan          148,990            216,510
Lease basis difference            95,563              86,308
Unrealized losses on derivatives, net            21,310                       -
Other temporary differences            42,566              41,899
         5,110,696          4,120,642
       
Temporary differences - Liabilities      
Goodwill amortization basis difference         (307,442)           (320,729)
Depreciation (useful life) basis difference         (895,407)           (851,436)
Business combination (1)         (920,214)           (761,429)
Unrealized gains on derivatives, net                     -             (42,493)
Unrealized fair value gains, net           (37,692)             (39,269)
Other temporary differences           (32,381)             (22,749)
       (2,193,136)        (2,038,105)
       
Total deferred taxes        2,917,560          2,082,537
       
Total Assets        2,941,270          2,109,064
Total Liabilities           (23,710)             (26,527)
         2,917,560          2,082,537
(1)The deferred tax liability on business combination is substantially represented by the allocation of goodwill to property, plant and equipment, brands and contingent liabilities.

The roll-forward of deferred income taxes, net, is set forth below:

Schedule of rollforward deferred tax

  12.31.21   12.31.20
Beginning balance      2,082,537      1,760,552
Deferred income taxes recognized in income from continuing operations         807,744        242,271
Deferred income taxes recognized in other comprehensive income            8,738          32,070
Deferred income taxes recognized in loss from discontinued operations          28,018                   -
Other (1)           (9,477)          47,644
Ending balance      2,917,560      2,082,537
(1)Related to the foreign exchange variation effect on the balances in foreign companies.

 

10.2.Estimated period of realization

Deferred tax assets arising from temporary differences will be realized as the differences are settled or realized. The period of settlement or realization of such differences is subject to externalities and is linked to several factors that are not under the control of Management.

In estimating the realization of deferred tax credits on tax losses carryforward, Management considers its budget and strategic plans, which were approved by the Board of Directors, adjusted for changes in economic assumptions and based on the estimates of the main tax additions and exclusions. The recoverability study is reviewed by the Fiscal Council and approved by the Board of Directors. Based on this estimate, Management believes that it is probable that these deferred tax credits will be realized, as presented below:

2022            50,574
2023          309,537
2024          299,366
2025          359,969
2026          400,725
2027 to 2029        1,364,017
2030 and 2031        1,085,141
         3,869,328

 

The Company has tax losses carryforward in Brazil, which at current tax rates represent R$6,204,203 on December 31, 2021 (R$4,589,674 on December 31, 2020), amount significantly increased in the year ended December 31, 2021 due to the processes described in note 9.4, in addition to other effects. Within this amount, R$3,846,423 on December 31, 2021 and (R$2,822,245 on December 31, 2020) are recognized as an asset, according to the recoverability expectation (note 3.9). The deferred tax credits on tax losses and negative social contribution basis related to the parent company and its subsidiaries domiciled in Brazil do not expire and the use to offset income taxes payable is limited to 30% of future taxable income.

10.3.Effective income tax rate reconciliation

  12.31.21   12.31.20 12.31.19
         
Income (loss) before taxes - continued operations           (34,788)          1,352,234          882,938
Nominal tax rate 34%   34% 34%
Benefit (expense) at nominal rate            11,828           (459,759)         (300,199)
Adjustments to income taxes        
Income from associates and joint ventures              8,626                       -            73,995
Difference of tax rates on results of foreign subsidiaries          244,822          1,018,576              5,263
Difference of functional currency of foreign subsidiaries               (129)          1,142,762            73,380
Deferred tax assets not recognized (1)         (840,457)        (1,842,478)           (72,254)
Recognition of tax assets from previous years (2)        1,025,000            361,000            33,790
Interest on overpayment of taxes (3)          104,789                       -                     -
Profits taxed by foreign jurisdictions           (33,455)             (63,252)           (79,435)
Share-based payment           (24,454)             (22,774)           (14,172)
Transfer price           (71,634)             (40,568)           (16,966)
Penalties           (11,042)               (5,261)           (48,633)
Investment grant          109,591              52,279            64,127
Reversal (recognition) of provision with no deferred tax constituted                     -                       -          481,356
Other permanent differences            28,617              32,238             (4,857)
Total          552,102            172,763          195,395
         
Effective rate 1587.0%   -12.8% -22.1%
         
Current tax         (255,642)             (77,373)           (94,699)
Deferred tax          807,744            250,136          290,094
(1)Amount related to the non-recognition of deferred tax on tax losses carryforward for the year ended December 31, 2021, in the amount of R$2,472,126, due to limited capacity of realization (note 10.2).
(2)The Company prepared recoverability study for deferred tax assets (according to note 10.2) and, based on it, recognized an asset in the amount of R$1,025,000.
(3)Related the non-taxation of interest on tax overpayments. Includes the amount of R$79,639 referring to previous years (note 9.4)

 

The Company’s management determined that the total profits recorded by the holdings of its wholly-owned subsidiaries abroad will not be redistributed. Such funds will be used for investments in the wholly-owned subsidiaries.

Income tax returns in Brazil are subject to review by the tax authorities for a period of five years from the date of their delivery. The Company may be subject to additional collection of taxes, fines and interest as a result of these reviews. The results obtained by subsidiaries abroad are subject to taxation in accordance with the tax laws of each country.