Like exporters, WEG (WEGE3) can also have the impacted profits for the Provisional Measure 1.152as assessed by the Itaú BBA.
The measure signed by the former president Jair Bolsonaro (PL) amends the collection of Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) of so-called transfer pricing.
According to BBAtransfer pricing rules should change from 2024. Currently, this mechanism is used by multinational companies to optimize their tax structure.
Transfer pricing refers to the price assigned when a company exports its products to an offshore subsidiary, which then resells them.
O BBA explains that, according to the current rules, under certain conditions, companies can legally fix prices, so that most of the profit from the transaction is abroad.
According to the BBA, WEG benefits from this, through its Austrian subsidiary, which acts as a trading company and, therefore, reduces the consolidated effective rate.
How is WEG impacted?
In a report, Daniel Gasparete and team say that, since 2015, the difference in foreign tax rates represented an average of 10% of the company’s consolidated taxable income.
“By subtracting 10 percentage points from our estimated tax rate for 2024, our final projection would decrease by approximately 10%,” they say.
In other words, the new rules proposed by the measure could lead to a 10% impact on WEG’s net income for 2024. However, the BBA analyst team believes that this hypothesis is unlikely.
The brokerage does not believe that the impact of the rate will be so much, “since the MP would only cause a redistribution of profits between the Austrian and Brazilian operations, while the rate of the first will continue to be lower”.
solid and defensive
BBA says that, as WEG is a net cash company, the company may consider leveraging its balance sheet to take advantage of a tax incentive effect.
Analysts believe that WEG can use other tools, such as optimizing its capital structure, to partially offset the effect on results.
“Leaving this turbulence aside, the WEGE3 it will remain a solid, defensive action, and we maintain our outperforming rating,” the BBA said.
The next steps for the MP must be decided by Congress. If nothing is done by March 3, the MP enters into an emergency regime. Once approved, the new rules take effect from 2024.
Source: Moneytimes
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