All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Tax uncertainty emphasises the need for reform at ITR’s Brazil Tax Forum 2020

Brazil cannot continue without a tax reform

Taxpayers at ITR’s inaugural Brazil Tax Forum said that continued uncertainty across all tax areas only further emphasises the need for tax reform, but politics stand in the way.

ITR held its first Brazil Tax Forum on September 9-10 to give Brazilian businesses and tax advisors a platform to discuss the many obstacles they face, eventually leading the conversation to the need for a comprehensive tax reform.

In-house business leaders noted that tax uncertainty arising from having a complex system is being felt across indirect taxation, direct taxation, and transfer pricing (TP) and makes their jobs more difficult. This is why Brazil – even as one of the world’s largest economies – comfortably holds first place in many tax complexity rankings.

With regards to the country’s intricate indirect tax system, where the federal government, states and municipalities are scrapping for tax revenue, a lack of clear definitions in indirect tax judgments decided in favour of taxpayers continue to make it difficult for Brazilian taxpayers to gain the level of tax certainty they seek.

“In 2017, we had a favourable decision regarding [a] matter but this doesn’t mean that the judicial discussions are over. After three years we have no definitions or security for the taxpayer over how, when, and which credits we can offset to effectively compensate other federal taxes,” said Ana Paula Olinto Yurgel, tax manager at Yara Brasil Fertilizantes, commenting on the ICMS exclusion for the PIS/COFINS taxable basis.

Furthermore, taxpayers have say the Brazilian Supreme Court has contradicted and confused the rules on tax incentives granted by states, delaying the end of the country’s tax wars.

“We could see the light at the end of the tunnel when we consider the situation of the tax war in 2017… In August we were surprised by two decisions by the Supreme Court,” said Paulo Nobrega, head of tax at Ontex.

Panellists were also unimpressed by Brazil’s proposed digital services tax (DST), citing more prominent concerns including how to classify digital offerings and pay for foreign technology. Infighting between the state and municipal authorities, combined with a lack of clarity in some legislation, is also causing problems.

“DST proposals don’t seem to fit the Brazilian system… it’s not a good way to address the problems we have here,” said Rodolfo Araújo, head of tax at iFood.

Close to 80% of tax professionals said the country’s tax system has prevented corporate investment on at least one occasion. Some investment opportunities may come from more merger and acquisition (M&A) activity expected in 2021 as many businesses are priced down due to the COVID-19 pandemic.

Investment and deal-making in Brazil has historically presented more tax risks for multinational companies than in other countries, largely due to the complex tax framework and issues with the judiciary.

The country, however, is moving towards OECD standards on transfer pricing (TP) and is encouraging a broader shift in how the tax authorities are dealing with taxpayers to develop a cooperative culture.

Tax uncertainty reigns on all fronts, only reinforcing the need for an overhaul of the tax system. There are concerns that the Brazilian government could trigger a wave of litigation in the short-term through its smaller tax reform. Nevertheless, many businesses see this as a necessary evil to achieve fundamental change.

Reform is key.

More from across our site

The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree