The Inward Investment and International Taxation Review: Brazil


Brazil ranks among the largest economies in the world (ranked 13th by the International Monetary Fund (IMF)2 in 2021 and 12th by the World Bank3 in 2020), with a population of over 213 million4 and the fifth-largest territory on the planet (over 8.5 million km2). Although it has suffered a severe recession in recent times (especially 2015 and 2016), as an emerging economy the country has huge potential for growth and investment, not only because of its enormous natural wealth (including energy potential), but also because of its large size, potential to increase its consumer market and the need to improve the still insufficient infrastructure available in the country.

As in various other countries, Brazil was severely affected by the covid-19 pandemic, not only in the health sector, but also in the economy. However, the IMF has projected an economic growth in 2021 at 5.2 per cent.5

Therefore, the potential for growth and foreign investment in Brazil is still enormous and the country is likely to recover part of its losses in 2021. Although there are still some bureaucratic and legal obstacles (especially with regard to tax law), investing in Brazil is not difficult, as foreign capital flows occur easily (provided that some simple formalities are fulfilled), and it is no longer as time consuming and costly as it used to be. In addition, there are few industries that have restrictions on foreign direct investment and the list has been shrinking year after year, as has happened very recently with the civil aviation and telecommunications markets.

While there is still work to be done, there is a clear tendency for improvement in the business environment.

Common forms of business organisation and their tax treatment

i Corporate

Businesses usually adopt a corporate form. The first steps a non-resident must take to invest in Brazil are: (1) appoint a representative in Brazil (which needs to be a Brazilian resident); (2) enroll with the Brazilian Federal Revenue Service for an Individual Taxpayer Number (CPF), if a foreign individual, or Brazilian Taxpayer Registry (CNPJ), if a foreign entity; (3) submit his or her credentials to the Central Bank of Brazil; (4) initiate the registration process at the Brazilian Securities Commission (CVM) to operate in the capital market (if this is the case); and (5) if a foreign entity, inform the ultimate beneficial owner of its chain of equity interest to the Brazilian Federal Revenue within a period of 90 days counted from the creation of CNPJ. Under Brazilian law, the officers of companies must be resident in the country.

The most common types of legal entities in Brazil are the following.

Limited liability company

The limited liability company (LTDA) is the most common form of corporate organisation in Brazil and is widely adopted because of its many advantages over a corporation (S/A): (1) it has a simpler and less expensive organisation; (2) it may be exclusively owned by a single quota holder, as explained below; and (3) corporate decisions can be made easier and quicker. Quotas represent the share of each partner in the company's corporate capital, with the partners' liability limited to the value of their quotas.

Recently, the Brazilian legislation started admitting the incorporation of the LTDA by a sole quota holder. Therefore, the incorporation of an LTDA by a sole individual or legal entity is allowed, whether national or foreign.


The responsibility of each stockholder is limited to the issued cost of subscribed or acquired capital. The capital stock of the company is divided into shares. The company may be considered 'publicly traded' or 'privately held', depending on whether the securities it issues are traded on the stock exchange or not. A publicly traded company must be registered with the Securities Commission, which is the federal agency in charge of regulating and auditing such firms.

ii Non-corporate

In Brazil, non-corporate entities are not a viable option for overseas investors, considering that only individuals that are resident in Brazil are entitled to create a non-corporate entity and such an entity has many limitations, such as a cap for maximum gross income (in case such cap is surpassed, the non-corporate entity must be transformed into a corporate entity).

Direct taxation of businesses

In Brazil, there are two corporate income taxes: income tax IRPJ and social contribution (CSLL). Both may be calculated by means of two different methods, which may be chosen by the taxpayer if certain legal requirements are met:

  1. deemed profit: optional to entities with income lower than 78 million reais during the previous calendar year; and
  2. actual profit: mandatory for entities with income higher than 78 million reais during the previous tax year, and optional in other cases.

i Tax on profits

Determination of taxable profit

Deemed profit calculation method

By means of the deemed profit calculation method, corporate taxes must be paid definitively on a quarterly basis, based on the entity's revenues, after applying presumed profit margins, such as 8 per cent for IRPJ and 12 per cent for CSLL on net profits, in case of sales of products, and 32 per cent for both, in case of services provision.

Once the deemed profit margins are applied, the presumed profit will be taxed by IRPJ at a rate of 15 per cent (plus 10 per cent applicable on the amount exceeding 60,000 reais per quarter) and CSLL at a rate of 9 per cent, which represent an effective global rate on gross revenue of approximately 3.08 per cent for product sales and 10.88 per cent for service provision.

Actual profit calculation method

The actual profit method consists of IRPJ and CSLL being levied on the entity's real net accounting income, after the adjustments (add-backs and exclusions) determined by the legislation. The main add-backs are provisions, donations, penalties and other non-operating expenses. The main exclusions are reversal of provisions, dividends and equity accounting.

Optionally, there are two possibilities for applying the actual profit method: quarterly or annually. On the quarterly calculation, definitive payments are made during the month after the calendar quarter ends. Thus, this option may be favourable in situations where income is earned constantly, taking into account that, in this case, tax payments are postponed for up to three months, so that only four tax payments are made per year.

The other option is the annual calculation. In this case, IRPJ and CSLL must be calculated definitely at the calendar year end, according to the actual profit rules; however, the taxpayer must pay, on a monthly basis, tax prepayments, which may be calculated either by the deemed profit or actual profit method.

Additionally, the tax prepayments paid during the tax year must be deducted from the corporate taxes calculated at year end to assess either a final payment due or a tax refund.

Capital and income

Capital gains are subject to a progressive rate of 15 per cent to 22.5 per cent, depending on the total amount of the gain. This also applies to capital gains on transfers of Brazilian assets between non-residents.

In the case of foreign entities domiciled in a tax haven jurisdiction or countries considered by Brazilian legislation to have favoured taxation (income tax rate below 20 per cent), the taxation on capital gains is increased to a 25 per cent rate.

Dividends distribution is based on the entity's net accounting profit, booked at profit and losses (P&L) and after corporate taxation (by IRPJ/CSLL, at an overall rate of 34 per cent). Thus, dividend distribution is not tax deductible at the entity level; however, it is exempt from taxation for the beneficiary because the profit that has been allocated has already been taxed.


Losses may be carried forward and accumulated for an unlimited time, but their deduction is limited to a maximum 30 per cent of taxable income per fiscal year.


Regarding the actual profit method, net income will be taxed by IRPJ at a rate of 15 per cent (plus 10 per cent applicable on the amount exceeding 240,000 reais per year) and CSLL at a rate of 9 per cent. For most companies, this results in a total tax on profit of nearly 34 per cent.


The activities of regulation, inspection and collection of taxes are performed by the tax administration bodies subordinate to the respective federative entities. If such bodies believe that there has been any kind of violation of the tax legislation, whether regarding the payment of taxes or the fulfillment of ancillary obligations, an infraction notice may be issued, in which the tax will be charged.

Upon notice to the taxpayer of the content of the tax assessment, it may pay the required amount with discounts, as the case may be, or file a defence against the assessment.

With the presentation of the defence, the enforceability of the debt under discussion is suspended (that is, the tax authorities cannot pursue judicial collection) and the administrative process begins. The debt will be suspended until the final conclusion of the process, without the need to guarantee the debt.

In the event of a favourable decision, the matter is considered closed and the tax authorities cannot appeal to the judiciary (i.e., the debt is definitively extinguished). In the case of an unfavourable decision, the taxpayer can pursue the matter further in court. In most cases, the taxpayer will have to provide a guarantee to challenge the debt in court.

Many ancillary obligations must be performed by the taxpayers. Regarding indirect tax returns, considering São Paulo Municipality and State, these are the main ones:

  1. ICMS (see Section III.ii):
    • ICMS information and calculation form (GIA);
    • integrated information system on interstate operations with goods and services (SINTEGRA);
    • information and calculation form – tax substitution (GIA-ST);
    • tax document electronic registration (REDF) (only applicable to retailers); and
    • digital tax bookkeeping (EFD); and
  2. municipality services tax (ISS):
    • tax collection for São Paulo municipality (DAMSP); and
    • tax collection form (issued online based on electronic invoices issued).

Regarding federal taxes (IRPJ, CSLL, social contributions on revenues (PIS and COFINS) and the federal excise tax (IPI)), it is necessary to file the following tax obligations:

  1. accounting books on annual basis: ECD (SPED Contábil) – standardised accounting plan submitted to tax authorities on annual basis;
  2. IRPJ and CSLL: annual corporate income tax return (DIPJ);
  3. PIS and COFINS: EFD – PIS/COFINS (SPED Fiscal);
  4. IPI (federal value added tax – excise tax): digital tax bookkeeping (EFD); and
  5. other tax returns:
    • DCTF: confirms all the federal tax payments made by a Brazilian entity during the month; and
    • DIRF: annual tax return of withholdings on behalf of third parties.

Tax grouping

The concept of tax group does not exist under Brazilian law.

ii Other relevant taxes

Import duty II

Import duty is due upon importation of goods. The calculation basis for import duties is the customs value (goods value increased by freight and insurance). Rates vary according to the harmonised system (HS) code of the product in the Brazilian External Tariff Code. Import duty II is not recoverable.


Federal social contributions levied on gross revenues and on the importation of products and services are basically calculated under two methods: cumulative and non-cumulative. The non-cumulative system is the general rule, while there are some taxpayers (banks, insurance companies, companies that accrue the income tax with the deemed profit method, etc.) and specific activities (civil construction, telecommunication, some kinds of transportation, etc.) subject to the cumulative system.

Under the non-cumulative method, PIS and COFINS are imposed on the gross revenues of the company or on the importation of products and services, at a general rate of 1.65 per cent (PIS) and 7.6 per cent (COFINS) for internal acquisitions and service imports and 2.1 per cent and 9.65 per cent for imports of goods, respectively. The contributions levied on the purchasing of some goods and services (both domestic and international operations) may be set off against the PIS/COFINS that will be levied on gross revenue.

Under the cumulative method, PIS and COFINS are due at a combined 3.65 per cent rate and there are no credits available.

For some specific products, like pharmaceuticals, perfumery, toiletries, personal hygiene, gas, oil, and cold beverages, among others, PIS and COFINS may be due under the single-phase system using higher rates to be applied to the calculation basis (gross revenue). In these cases, they are fully paid by the first one to introduce them into commerce (manufacturer or importer).


The ICMS is a state tax that applies to operations relating to the circulation of goods and the rendering of certain types of transportation and communication services, including upon the importation of goods.

The ICMS is a non-cumulative tax, where the tax to be paid in a certain month (accrual period) is obtained by the rate applied on sales (debts), minus the tax paid in later transactions (credits).

As a general rule, the calculation basis is the total amount of the transaction, including all the expenses (e.g., freight, purchase or handling etc.) that are actually borne by the purchaser, excluding discounts or rebates unconditionally granted. It is calculated on its own value (grossed-up basis).

For the import of goods, the calculation basis is the cost, insurance and freight value of the good increased by the import duty, duty expenses, IPI, PIS/COFINS and ICMS itself.

On domestic transactions, the ICMS tax rate is established by each state, according to the description or HS Code of the product. Normally, the rate is 17 per cent or 18 per cent, depending on the state where the company is located, but it may reach higher rates for products considered as non-essential.

The ICMS rates on interstate transactions apply as follows:

  1. 4 per cent for resale of imported products or manufactured products containing more than 40 per cent imported material;
  2. 7 per cent when taxpayers located in the southern and southeast regions (except Espírito Santo) remit goods or services to taxpayers resident in the states of the northern, northeast and midwest regions, and the state of Espírito Santo; and
  3. 12 per cent when taxpayers located in the southern, southeast (except Espírito Santo state), northern, northeast and middle-west regions remit goods or services to taxpayers resident in the southern and south-east regions (except the state of Espírito Santo).


IPI is an excise tax imposed by federal government on imports of goods, on the first sale of imported goods and on transactions involving manufactured goods (if the product was previously manufactured by the seller). The definition of manufacturing for IPI purposes 'includes any operation that modifies the nature, functioning, finishing, presentation, or purpose of a given product, or improves it for consumption, like transformation, improvement, assembly, packaging, repackaging, renovation or refurbishment'.

IPI tax rates may vary from zero per cent to 300 per cent, depending on the traded goods, but are usually between 8 per cent and 20 per cent. The amounts paid on domestic acquisitions or importations generally become a tax credit to offset the IPI due on subsequent transactions. If the company purchases finished goods from local manufactures and does not perform any sort of manufacturing on them, no IPI will be charged.


ISS is a municipal tax imposed on certain services rendered to or by Brazilian entities or individuals. Federal Complementary Law No. 116/03 determines which types of services are subject to ISS by means of a taxable services list. Its tax rate varies from 2 per cent to 5 per cent, according to the nature of the service and the city where the service provider is located. The import of services (rendered by non-residents to Brazilian residents) is also subject to ISS.

Payroll taxes – INSS

Corporate payroll is subject to a social contribution tax system. These social contributions amount to between 26.8 per cent and 28.8 per cent of the total payroll and must be paid monthly by the companies. These percentages include the employee's contribution (20 per cent), occupational accident insurance – the percentage of which varies from 1 per cent to 3 per cent, depending on the risk of accidents at the company – and approximately 5.8 per cent as contributions to parastate entities, such as SESC, SENAT, SENAI, etc.

These contributions are not to be confused with the social contribution that the worker must pay him or herself, which is deducted at source by the employer. For this, there is a deduction of 7.5 per cent to 14 per cent of the monthly salary paid to workers, which must be paid by the company regardless of the payment of social contributions on the payroll.

Tax residence and fiscal domicile

i Corporate residence

Legal entities are considered to be resident in Brazil provided that they have incorporated an entity in the country. The domicile is defined by the company's headquarters.

ii Branch or permanent establishment

In general, foreign companies may not carry out local activities in Brazil except through a registered subsidiary or branch. However, these types of entities are not commonly used in Brazil as they require prior approval from federal authorities to be registered. Therefore, international investors in almost all situations prefer to incorporate companies in Brazil (S/A or LTDA), as mentioned above.

On the other hand, there is no definition of 'permanent establishment' for tax purposes in Brazilian law. Income tax legislation contains some provisions for special cases, such as the above-mentioned subsidiaries and branches, in addition to commission contracts and direct sales through an agent or representative, but there is no more general definition. However, the National Tax Code provides that tax capacity is independent of the regularity of the legal entity, with the presence of an 'economic or professional unit' for the company to be taxed. Thus, the Brazilian tax authorities have the option, when identifying corporate economic activity, to tax this activity even if there is no formally established company, including non-resident activity.

It is worth remembering that the definition of 'permanent establishment' is present in all treaties to avoid double taxation signed by Brazil, with some slight conceptual variations among them. The definition only takes into consideration physical criteria of connection with Brazilian territory, which makes its application impossible, for example, to activities conducted in the digital economy.

Tax incentives, special regimes and relief that may encourage inward investment

i Holding company regimes

In Brazil, there is no special holding company regime, so companies must apply the general tax legislation in their activities.

ii IP regimes

IP has a strong protection system in Brazil, based both on domestic legislation and international treaties signed by Brazil. However, there is no special IP tax regime.

iii State aid

There are several tax benefits granted to taxpayers in certain sectors, for both federal taxes and ICMS.

Manaus free zone

Legal entities located in the Manaus free zone benefit from tax incentives imposed on import tax, IPI and income tax – IRPJ, PIS, COFINS and ICMS.

To be entitled to tax incentives in the Manaus free trade zone, entities must:

  1. be located in this geographically delimited area;
  2. fulfill a basic production process;
  3. develop increasing levels of productivity and competitiveness;
  4. reinvest the profits made in the region in the region itself; and
  5. grant social benefits to workers, among others, always aiming at the development of the region itself.


REPETRO is a special customs regime with the scope of granting the suspension of some federal taxes on the exportation and importation of specific equipment to be used for exploration and extraction activities for oil and natural gas deposits.

Companies qualified in REPETRO have suspension of import tax, IPI and PIS/COFINS. There is also authorisation for states to grant ICMS incentives on these operations.

Special Infrastructure Development Incentive Scheme

The Special Infrastructure Development Incentive Scheme (REIDI) covers legal entities that are linked to infrastructure in the transport, sanitation, port, energy and irrigation sectors.

REIDI was created to grant authorised companies the suspension of PIS or COFINS, and PIS or COFINS-Import.

Benefits for IT

There is a special regime for companies that have investments in information technology R&D activities, or in communication industry. Financial credit is granted for companies that qualify for this tax incentive scheme. Many states also grant ICMS benefits for these industries.


The Reintegra programme aims to reduce the tax burden on goods exported by Brazilian manufacturers by granting PIS and COFINS tax credits. This measure, therefore, impacts the benefit of the exoneration of the export transaction. However, in 2019, the federal government reduced the rate for calculating Reintegra credits from 2 per cent to 0.1 per cent.

Withholding and taxation of non-local source income streams

i Withholding outward-bound payments (domestic law)

Dividends are exempt from any taxation, as already stated. Interests and royalties paid to non-residents are subject to a 15 per cent or 25 per cent withholding tax (WHT), except if a different rate is applicable because of a double taxation convention.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

There are no exceptions, except for dividends.

iii Double tax treaties

Brazil still does not have an extensive double tax treaty (DTT) network, though some important improvements have been made in recent years. Currently, there are 34 DTTs in force and some are waiting for congressional approval after being signed. In general terms, the DTTs signed by Brazil follow the Organisation for Economic Co-operation and Development (OECD) model, though Brazilian authorities have different interpretations of certain aspects than international standards.

Taxation of funding structures

i Thin capitalisation

Brazilian entities with foreign capital must submit the interest incurred related to loan agreements with its overseas stockholder to a control of deductibility of expenses for tax purposes.

In addition to the general rules of deductibility (expenses must be necessary and operational) and transfer pricing (TP) rules, Brazilian legislation establishes thin capitalisation rules to test the deductibility of interest incurred on loans with related persons abroad.

The methodology is to compare the value of the debt linked to the entity's stockholder abroad to a certain fraction of the Brazilian entity's equity (debt-to-equity ratio). The debt-to-equity ratio is 2:1 for loans with related parties and 0.3:1 for loans taken from tax havens. If the entity verifies that the legal criteria for the deductibility of the interest expenses were not met, the entity will have to add back those costs to the IRPJ and CSLL calculation bases.

ii Deduction of finance costs

In general, necessary interest and finance expenses are tax deductible, including payments to foreign entities. However, payments to entities domiciled in tax haven jurisdictions (blacklisted) or with special benefit regimes (greylisted) may be limited according to thin capitalisation rules.

iii Restrictions on payments

As long as the investment in registered within the Brazilian Central Bank, there are no rules restricting the payment of dividends.

iv Return of capital

Equity capital can be repatriated. Dividends are tax exempt. Interest, capital gains on sale of shares or quotas, and some other remittances are generally subject to 15 per cent income tax rate or lower treaty rate.

Acquisition structures, restructuring and exit charges

i Acquisition

Non-resident companies may acquire local businesses using a resident or a non-resident entity. Non-residents are required to be registered with domestic authorities (Federal Revenue Office and Central Bank) in order to do so.

In general, buyers structure financing through loans, being remunerated by interest on net equity (INE) and equity, being remunerated by dividends.

Though dividends are tax exempt, INE is subject, at the beneficiary level, to a 15 per cent WHT rate, for both domestic and foreign recipients. However, INE is considered a financial expense at the company level and, therefore, is deductible at a 34 per cent rate, which could be important tax savings for the Brazilian entity. This deductibility is limited to 50 per cent of the accumulated profits or 50 per cent of the annual profit (whichever is higher).

ii Reorganisation

In Brazil, mergers and demergers are not subject to any specific taxation. However, if a company with losses is merged into another, the losses will no longer be carried forward. The same does not apply to the latter, because the restriction is only applicable to the company that will be extinguished.

Brazilian legislation does not allow domestic companies to merge with non-domestic entities unless the latter has a branch or subsidiary in Brazil. In this case, the merger would be between Brazilian entities.

iii Exit

There are no restrictions if a business decides to repatriate investments and exit from a Brazilian company. However, if the Brazilian company is meant to be extinguished, it must present a clearance certificate of debts before the Board of Trade. In addition, if the investment is liquidated with capital gains, the gains will be taxed at a 15 per cent to 22.5 per cent rate, depending on the amount.

Anti-avoidance and other relevant legislation

i General anti-avoidance

Although Brazil has a general anti-tax avoidance rule, this rule is not yet applicable by tax authorities in specific cases, as it requires regulation.

However, while not yet applicable, tax authorities (especially federal) often apply other articles of the National Tax Code to disregard transactions for tax purposes when the acts or business carried out lack a business purpose. Assessments derived from this type of understanding do not always prevail at the administrative level or in court, although it can be argued that any tax planning in Brazil today must have a relevant purpose or motivation that is not simply tax savings.

ii Controlled foreign corporations

Brazil has controlled foreign corporation legislation that is applicable to any controlled and related foreign entities, whether they are involved in business activities or not. Profits are taxable at the Brazilian company at the time the controlled company closes its financial statements at the end of the fiscal year.

iii Transfer pricing

In Brazil, transfer pricing calculation is mandatory for (1) individuals or legal entities, resident or domiciled in Brazil, that conduct business transactions (goods and services importation or exportation and financial transactions) with an individual or legal entity, resident or domiciled abroad, considered a related party, even if acting as an intermediary; and (2) individuals or legal entities, resident or domiciled in Brazil, that conduct transactions with any person or entity, even if unrelated, resident or domiciled in tax havens or in countries with privileged tax regimes.

For import operations, the legislation allows the taxpayer to define the comparable price based on one of the following methods.

Resale price less profit

Weighted average of the resale price, less (1) granted unconditional discounts; (2) taxes and duties incurring on the sale; (3) paid commissions and brokerage fees; and (4) a fixed profit margin, which is set by law and varies from 20 per cent to 40 per cent depending on the industry of the company. The resale price less profit method is applied to imported goods, services or rights resold in Brazil directly, without any transformation, or incorporated into domestic production.

Comparable independent price

Defined as the weighted average price of goods, services or rights that are identical or similar, calculated in the Brazilian market or in other countries, in purchase and sale transactions conducted by a Brazilian company or third parties when acquiring identical or similar goods, services or rights abroad.

Cost plus

Defined as the average cost of production of identical or similar goods, services or rights in the country where they were originally produced, plus taxes and charges on exports in that country, plus a 20 per cent profit margin, calculated on the pre-tax cost.

Price quotation method on import

This is a subdivision of the comparable independent price method, specific to commodities transactions, defined as the daily average prices of goods and rights listed on internationally recognised futures and commodities exchanges.

The deductibility of some expenses is regulated by specific legislation and therefore is not subject to TP rules.

Export transactions may also be subject to transfer pricing rules according to specific methods.

iv Tax clearances and rulings

At all levels (federal, state and municipal), Brazilian tax law allows taxpayers, before completing a business transaction or even corporate reorganisation, to submit a formal consultation with the tax authorities regarding the interpretation of the applicable tax law to a given fact.

At the federal level, in addition to questions about the interpretation of tax legislation, it is possible to formulate specific consultations on (1) the tax classification of products and goods; (2) customs legislation; and (3) transfer pricing rules.

Although it is possible to formulate consultations on tax legislation, this practice is not widespread among taxpayers, as decisions made by tax authorities tend to disagree with any interpretation that entails a lower tax burden.

Year in review

In the same way as in 2020, the Brazilian Supreme Court has continued to lead the tax updates in 2021, as the court has issued important decisions on several tax matters. The main cases decided were:

  1. the incidence of income tax on the Selic rate (interest on late payment and monetary correction) received by the taxpayer in the recovery of the undue payment was declared unconstitutional;
  2. the court ruled, definitively, the motions for clarification pending in RE 574,706 (thesis of the century), which concluded that the inclusion of ICMS in the PIS and COFINS calculation bases was unconstitutional; and
  3. the court held that states cannot charge ICMS on the simple physical movement of goods between establishments of the same company.

In addition, the federal government presented a bill to reform the income taxation for individuals and legal entities. The most controversial point of this reform was the reestablishment of the taxation of the distribution of dividends and the extinction of the INE. After many comings and goings, the bill was approved in the Chamber of Deputies and is currently pending approval by the Senate. As the bill was heavily criticised by taxpayers and is met with great resistance in the Senate, it is likely that it will not pass.

Outlook and conclusions

Tax reform is still a recurring theme on the Brazilian political agenda, even though the broader proposals did not evolve much in 2021. After the Senate showed little interest in proceeding with the approval of the income tax reform, some senators returned to talking about prioritising taxation on added value.

In this matter, the proposal that has made the most progress is Constitutional Amendment Proposal (PEC) 45/2019, which aims to eliminate the five indirect taxes currently collected by the government (IPI, PIS, COFINS, ICMS and ISS) and create a new tax (IBS), which would be levied on goods, merchandise, services and intangibles.

Under the proposal, the collection of the IBS tax would be divided among the federal, state and municipal governments, with each entity having the ability to establish the percentage that would be due to it within the single rate of the tax, according to certain criteria provided for in the proposal. The payments to states and municipalities would be due to the states and municipalities to which the goods and services are sent.

The proposal has several advantages over the current system. Primarily, the simplification would be drastic, not only by replacing the calculation and collection of five taxes with the calculation and collection of only one, but mainly because of the probable reduction of the numerous ancillary obligations and formalities that must be fulfilled by taxpayers today.

In addition, the payment of indirect taxation to the place of destination of the good or service tends to reduce the 'race to the bottom' that occurs between states and municipalities.

Another advantage of the proposal is standardising taxation among the various industries, ending the numerous sectoral regimes that make indirect taxation extremely complex and less isonomic. This standardisation is because of the prohibition on the granting of any kind of tax benefits by taxing entities, which has been the target of some criticism, especially for the absence of alternative proposals for regional incentives.


1 Heitor Cesar Ribeiro is an executive partner at Gaia Silva Gaede Advogados.

5 Accessed 28 October 2021.

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