Abstract: The Ministry of the Economy has submitted the first part of its tax reform plan that, initially, foresees but the unification and simplification of the PIS/COFINS social security contribution – creating the Contribution on Goods and Services (CBS).
As has been recently noted in the media, Minister of the Economy Paulo Guedes has divided up the tax reform plan of the Federal Government, anticipated for decades now, presenting its first part to the National Congress on July 21, 2020.
The intention is that the bill will be joined to two others already under consideration (House of Representatives Bill for Proposed Constitutional Amendment (PEC) 45/2019 and Federal Senate Bill PEC 110/2019).
In sum, the first part of the Federal Government’s tax reform plan treats but the unification and simplification of the PIS/COFINS social security contribution via the creation of the Contribution on Goods and Services (CBS). PIS/COFINS incident on imports will also be substituted by the CBS and have import as its tax event.
The dividing up of the tax reform bill into parts significantly increases its chances of approval as more complex changes, that depend on the approval of Constitutional Amendments or are related to State and Municipal federative questions, as well as more polemic modifications, are outside of the scope of this first part.
This to say that this first part of the tax reform bill does not encompass state or municipal taxes or federal indirect taxes. Nor does the bill treat the taxation of dividends or digital transactions, among so many other related suggestions towards overcoming the fiscal crisis as appear in the media. There is no indication as to whether or when these possible subsequent parts will be forthcoming.
This does not mean to say, however, that the first part of the tax reform bill is irrelevant or shall bring about little change to national fiscal policy. On the contrary, the expectation of the Federal Government is an increase in Brazilian economy productivity by up to 0.5%, with a positive result of up to 1% to the GNP and the creation of up to 373 thousand jobs – all as the result of this first part.
Firstly, the first part of the Federal Government’s tax reform plan seeks to reduce the complexity to taxation by consolidating the PIS/COFINS contribution into one – the CBS contribution – which in itself can reduce tax compliance cost.
Further, the first part of the Federal Government’s tax reform plan seeks to simplify taxation by unifying the various regimes of the PIS/COFINS contribution into the single non-cumulative regime of the CBS and with a general tax rate of 12%.
By way of the example, according to the terms of the first part of the Federal Government’s tax reform plan this monophasic regime is limited to certain products of the combustibles and cigarette sectors. Thus, problems inherent to the coexistence of non-cumulative, cumulative, monophasic and substitutive taxation and its correspondent administrative and judicial litigation are also reduced by the CBS.
Also, amongst the suggested changes contained in this first part is the subjecting of the CBS to a full financial credit regime, that is, of use of credit with respect to all taxable goods and services acquired by taxpayers. These credits can be compensated by other federal taxes or determined upon acquisition in the case of Unified Special Regime for the Collection of Taxes and Contributions-adhering taxpayers not having modified their regime and capable of generating credits for other taxpayers.
Thus, the CBS, according to the terms of the first part of the Federal Government’s tax reform plan, can reduce administrative and judicial litigation with respect to the types of credits established under Laws ns. 10.637/2002, 10.833/2003 and 10.865/2004, as well as the ill-advised fiscal credit regime that the Brazilian Internal Revenue Service had sought to impose infralegally.
Lastly, from the first part of the Federal Government’s tax reform plan it can be seen that no tax per se will be computed into the tax base of the CBS, nor will the amount of the contribution itself. And constitutional tax implications, such as relate to import or the Manaus Free Trade Zone, are maintained.
Despite, however, the positive aspects noted above, especially with respect to the simplified determination of the federal contributions, a series of questions and problems are perceived.
Beyond the necessity of broad tax reform, as is being defended, by example, by the National Confederation of Industries, there is the preoccupation of sectors of the economy as to possible increased taxation.
By way of example, a section of the services sector shall not be able to compile CBS credits sufficient to reduce the nominal 12% rate to a rate approximate to what it is paying at present.
And there are delicate questions, such as the application of tax implication on digital platforms intermediating transactions or the rendering of services sold remotely, situations in which the seller does not emit electronic invoices.
Also with respect to the digital word there are assignment or licensing or rights, including intangible, aspects to CBS-taxable services, exclusively relating to import.
These are some of the principal points we touch up for now relative to the first part of the Federal Government’s tax reform plan. In addition to accompanying the progress of the approval review of this bill and other correlated bills, it is important that taxpayers verify and anticipate the potential impacts of these changes on their business transactions.
Almeida Advogados has a team specialized in Tax Law that remains at your disposal to clarify any doubts with respect to the content of this article.
Written by:
Leonardo Melo
Laura Prado Zimmermann