Local experts in Brazil are calling for a reconsideration of the proposed digital tax on big tech companies, suggesting that other measures should be explored instead. These views come in response to statements made by Brazilian Deputy Finance Minister Dario Durigan, who recently argued that taxation on large technology firms could help the country achieve its target of a zero primary deficit by 2025.
Brazil’s finance ministry is expected to propose this tax to Congress later this year if a revenue shortfall arises. The proposed tax on big tech companies would be used to fund projects related to digital inclusion and improvements to the country’s telecommunications infrastructure. Communications Minister Juscelino Filho has been vocal about the need for such companies to play a more significant role in improving connectivity across Brazil. "It is time for technology giants to contribute more effectively to expanding connectivity. It is a social duty of these companies," he reportedly said earlier this year.
However, some legal and tax experts have expressed concerns about the timing and rationale behind the digital tax. Allan Fallet, tax partner at Mauger Muniz Advogados in São Paulo, emphasized that Brazil is currently going through a turbulent economic period. "Many debates are being held, and several tax rule changes are being made that will directly affect the taxation of digital services in the country," he explained. Fallet argued that with the possibility of tax rates in the sector rising as high as 27%, now is not the time for the "hasty insertion" of a new tax, especially without proper discussions with society and the sectors affected.
Fallet further pointed out that Brazil’s federal government should explore other ways to improve public finances, particularly during the ongoing economic crisis. "This type of public declaration without due technical explanation increases legal uncertainty in this sector…which scares away foreign investors," he added.
Ana Carolina Fernandes Carpinetti, a partner at Pinheiro Neto Advogados in São Paulo, noted that there is precedent for Brazil's government considering a digital tax. "During the tax reform debates in the national congress [as of 2019], some amendments were proposed to introduce a tax on digital services in addition to the traditional VAT, but Congress did not approve them," she said.
Carpinetti cautioned that the idea of a digital tax in Brazil should be revisited. She argued that it is based on the misconception that technology companies are not paying enough taxes. “Brazil’s source-based income taxation system already allows the government to collect significant amounts from payments remitted abroad to companies without a physical presence," she explained. Additionally, many tech companies already establish local presences and are subject to regular taxes on imported services and licenses from group companies that own platform rights.
Carpinetti also stressed that Brazil’s tax system is equipped to handle issues related to digital companies, unlike other jurisdictions that struggle to capture revenue from these firms. “Importing international experiences in this case would be a major mistake and could work against the government's goal of encouraging investment and stimulating the Brazilian economy," she said.
Earlier this year, experts in Brazil debated other fiscal measures, such as the reinstatement of payroll tax relief for 17 business sectors, representing a significant policy shift. Additionally, in October last year, a new transfer pricing system was introduced to regulate tax practices in the country.
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