The Company has benefits from Brazilian state tax incentive programs to promote industrial development including the deferral of payment of taxes. These State programs are to promote long-term increases in employment, industrial decentralization, as well as complement and diversify the industrial states.
In the case of these States, the tax terms are foreseen in tax law. When conditions to obtain these grants exist, they are under the Company's control. The benefits for the postponement in the payment of such taxes are recorded in the income statement, on an accrual basis.
The interest rates and (or) terms of these loans are advantageous over the market conditions, such financing are considered as subsidized loans as determined by IAS
20.
The referred subsidy consists of the gain earned when comparing the value of these operations in market to the value agreed in contract. Thereby, upon funding the subsidy calculated is recorded in Other operating income, following the treatment for the other ICMS subsidies. Management reviews annually the market conditions prevailing in the year to assess such subsidies.
Monthly, taking into account the value of the consideration, the period to maturity, the financing contract interest rate and the above mentioned discount rate, the reduction in present value adjustment is allocated to financial income, so as to bring the balance to
zero
by the time of settlement of each consideration.
