International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Fintechs in Brazil give their thumbs up to a tax sandbox

Sponsored by

Brazilian fintechs are experiencing a tax sandbox

Flávio Veitzman and Vinicius Pimenta Seixas of Pinheiro Neto discuss the Brazilian fintech community’s growing call for a friendly and reasonable tax environment.

A significant part of the world´s population has historically been excluded from the financial system. In Latin America, where almost half of the population remains unbanked, this phenomenon is even steeper. 

The World Bank, through its Global Findex Database 2017, reports that despite the evidence of significant growth on the financial inclusion levels in Latin America over the past few years, there remains a large gap between poor households and their access to financial services.

Digital technologies are an essential tool in bridging this gap as disruptive solutions brought forward by fintechs are allowing more people, who are traditionally excluded from the banking system, to integrate into the financial community. Increasingly, they can send and receive digital payments by using mobile phones; access credit through peer-to-peer platforms and hold digital accounts, and therefore can benefit from the new opportunities. 

While the Government and Congress struggle to keep up with the pace of the digital revolution, the Central Bank of Brazil (BACEN) has surged ahead by creating a regulatory sandbox that allows fintechs to operate and test their products with the Brazilian market. BACEN has also recently passed regulations addressing credit fintechs, by setting forth a legal framework specifically designed to cover ‘light’ financial institutions such as direct lending companies (SCDs) and peer-to-peer lending companies (SEPs).

In spite of BACEN’s regulatory guidance, the Brazilian tax authorities have remained silent concerning the tax treatment applicable to fintechs. This has expectedly opened debates on whether or not they should be subject to the same tax treatment applicable to traditional Brazilian financial institutions, which despite generally being more burdensome and regulated (i.e. requiring compliance with ancillary obligations), can provide for some benefits, such as taxation over the financial spread and withholding tax (WHT) exemption on financial income. 

In practice, Brazilian fintechs are experiencing a tax sandbox, even though this is a likely unintended move by the Brazilian tax authorities, who so far, have not followed the more structured actions taken by BACEN to leverage the positive effects of technology into the financial industry. As expected, one of the key challenges of Brazilian fintechs is to properly fit in the general tax regimes (lower rates) applicable to corporate entities, while benefiting from special regimes of taxation over the financial spread afforded to financial institutions. 

Digital technology continues to transform the levels of financial inclusion in Brazil and the tax system should not be a hurdle for this transformation process. Reasonable tax regulation, backed by the lessons learned from the current tax sandbox, should provide more legal certainty to market participants, and thus leverage the social and economic gains associated with the growth of financial inclusion in Brazil.

more across site & bottom lb ros

More from across our site

Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.
The Asia-Pacific awards research cycle has now begun – don’t miss on this opportunity be recognised in 2023
An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
Sanjay Sangvhi and Sahil Sheth of Khaitan & Co explore this legal concept and its implications for companies doing business in India.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.