Overview of Brazilian Tax Reform Proposal
The Brazilian Tax Reform proposal in October 2019 aims to address challenges in the current tax system by introducing changes such as a broader tax basis, simplification, and centralized collection. The proposal includes various key elements like PEC 45/2019, PEC 110/2019, and PEC 128/2019, aiming for a uniform tax regime and potential taxation on every transaction. However, it also poses challenges such as potential litigation on the definition of destination and the accumulation of IVA credits. The reform seeks to streamline taxation processes and reduce bureaucracy in Brazilian courts.
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Brazilian Tax Reform October, 2019
Current Brazilian Tax System Revenues Profits Income Import/export Rural property Financial transactions Goods (Some) services Transportation Donations and death Property of vehicles Services Real estate transfer Federal STATE MUNICIPAL Challenges Conflict of competence (states x municipalities) Disputes of interpretation Bureaucracy Litigation in Brazilian courts Brazilian Tax Reform 2
Proposals - Overview PEC 45/2019 PEC 110/2019 PEC 128/2019 IOF COFINS COFINS COFINS PIS PIS PIS CSLL IPI IPI CIDE- Fuel ICMS IPI ICMS IOF ISS ICMS ISS Ed. Salary 6 5 extinctions extinctions ISS 9 extinctions and 2 changes IVA State/ Municipal Federal Selective Tax IVA Federal State IBS Federal IBS IBS Corporate Income Tax IPI IMF Non-cumulative VAT Federal Selective Tax for specific products considered externalities (e.g cigars and alcohol) Non-cumulative StateVAT Federal VAT for specific sectors (e.g., fuel, oil, telecommunication) Corporate Income Tax (CIT+CSLL) Non-cumulative VAT Federal Non-cumulative VAT State/Municipal IMF: Tax over cash flow IPI: only for considered negative externalities negative specific products Two changes: ITCMD to be charged by Federal Government IPVA encompassing aircraft and vessels Taxation on profits and dividends Digital and financial services/goods taxed exclusively by the Federal Government Brazilian Tax Reform 3
General Opportunities and Challenges Opportunities Challenges Broader tax basis: all types of goods, services intangible and other activities will be taxed, imposing taxes in activities which are not currently taxed (such as rental) Tax simplification Uniform tax regime Centralized collection Potential taxation on every transaction Non-cumulative tax (IBS or IVA): all credits Potential litigation on definition of destination Simpler tax reporting Potential accumulation or distortion of IVA credits depending on the companies activity Relief of tax litigation Lack of special regime to given sectors Brazilian Tax Reform 4
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