• Service: Tax
  • Type: Business and industry issue, Video
  • Date: 10/15/2012
  • Length: 5:17 Minutes

A review of current issues relating to a complex tax regime in Brazil  

Murilo Mello, Partner, Tax, KPMG in Brazil:

My name is Murilo Mello. I am a tax partner in KPMG Brazil, based in São Paulo, one of the 26 different states we have in the country.

Why is the Brazilian tax system so complex?

We did have somehow a complex tax system because we have taxes being charged at different levels of taxation. We have taxes being charged by the federal government, by the state government, and by the municipal government. So, at the end of the day, you can have one single taxable event giving rise to different taxes at three different levels of taxation which attracts a lot of complexities for the business organizations.

Brazil is not a OECD member country, even though for double tax treaty, we follow the OECD model. But even though we have these, let’s say, OECD background, our transfer pricing rules are unique, our double tax treaty interpretation are somehow very particular from the tax authority’s point of view, so in that event, I think for us, it’s sometimes difficult to match international, global transfer pricing policies or international tax structures with the Brazilian perspective. Not only because it’s not OECD oriented, but also we have central bank rules, we have different taxes being charged on a cross-border basis, so at the end of the day, we have a lot of issues, and very specific characteristics, of the Brazilian tax system that we need to deal with on a cross border tax planning opportunity.

How can companies manage complexity?

Planning ahead is a key matter for Brazil. Investments on the ERP systems, your electronic tax compliance, we are going to talk about later on trends, tax trends in Brazil. One trend in Brazil is to have everything filed electronically, so investments in this area is a key aspect to avoid penalties, to comply correctly with the tax legislation. There is also a trend of tax incentives that’s a policy of the government to grant tax incentives in all different levels of taxation in order to somehow help the business and also try to mitigate the overall tax burden, so it’s a long term trend in Brazil not only to potentially try to reduce the very high burden we have, but also try to create an incentive for certain behaviors of taxpayers, like purchasing cars, home appliance products and so forth, or even develop regions like the north and the northeast as most part of the businesses are located in the south part of the country, there are incentives for corporate income tax, for instance, that companies located in the north or northeast would probably pay less corporate income tax.

What does the future hold?

Both business and the government, everybody agrees that we need to have major tax reform to simplify the system. So, starting with the indirect taxes to simplify state sales taxes, federal excise tax, growth revenue taxes in one single VAT, for instance, but this way, we involve a lot of political debate, and a lot of, let’s say, arrangements between states and central government. You need to be aware, the law can change sometimes from one day to the other for certain type of taxes, so having a very good team aware of tax law changes with time dedicated for tax planning or not only tax compliance, it’s necessary to put in place strategies for your local team to have a very good dialogue with the headquarters, to understand what is happening outside the country, what’s expected for the business locally, but also to save time for people on the ground in Brazil to dedicate, for setting the taxes, going to the market, see the competitors, what they are doing, study their cases, in order to put in place strategies for a better and efficient tax management in Brazil.

Murillo Mello, Tax Partner, KPMG in Brazil speaks about the complex Brazilian tax system and sheds light on new developments

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Iberoamerica Tax Summit 2012

Tax views
Videos and articles on views captured at the Iberoamerica Tax Summit 2012.