As stated in a previous Legal Alert, the issuance of Provisional Measure No. 1,227/2004 introduces several significant changes to tax legislation, with the premise of bringing greater fiscal balance to offset the alleged revenue losses from the continuation of the Payroll Tax Relief program for the sectors that employ the most in the economy and municipalities, until 2025.

However, the supposed fiscal balance sought by the Federal Government imposes undue burdens on taxpayers, as the issuance of this Provisional Measure will result in serious restrictions on the use of their tax credits, creating a clear situation of fiscal imbalance for taxpayers.

A relevant point is the interpretation that these restrictions are only valid for credits generated after June 4, 2024, considering the literal wording of Provisional Measure No. 1,227/2024, especially since there is no express indication regarding the prohibition of credits generated before the issuance of this regulation. This interpretation seems correct and would be important for protecting the financial flows of taxpayers, who have already considered using these credits in their financial planning for the current year. Nevertheless, in theory, credits generated after June 4, 2024, would face the new limitation.

Given the strong stance taken by entities representing taxpayers and the general dissatisfaction with the undue limitation on the use of PIS and COFINS Contribution credits, there is room for judicial challenges against these limitations, including on the grounds of violating certain tax principles.