International Tax Newsletter - October 2022

Pix grows in preference as an e-commerce payment method

With the advancement of Pix in these two years of operation in Brazil, e-commerce is already considering ending payments by bank slip.

The Central Bank of Brazil (BCB) says that the tool continues to grow in preference for payments between people and companies, such as retailers.

According to BCB data, in September this year, the number of transactions of this type was BRL 430 million, compared to BRL 130 million in the same period last year, which represents a jump of 225%.

When analyzing the transaction values, the growth is lower, showing a share of small-value purchases. Even so, the total almost doubled in 12 months: from BRL 48.9 billion to BRL 91.7 billion.

Regarding the amount accumulated throughout the year, until September, the amount paid by Pix between people and companies reaches BRL 680 billion and can reach BRL 1 trillion until December.

Labor market participation rate remains below pre-pandemic

Data from the Brazilian Institute of Geography and Statistics (IBGE) show that even with the reopening of economic activities, the labor market participation rate remains below the pre-pandemic level in Brazil.

In the quarter up to August 2019, before the health crisis, the indicator was at 63.7%, according to the Continuous National Household Sample Survey (Pnad Contínua). After the adoption of restrictive measures to curb the coronavirus, the rate dropped to 57% in the same period in 2020.

With the advancement of vaccination, the indicator showed signs of growth throughout 2021 and 2022, reaching 62.7% in the quarter until August this year. That is, despite the high in recent months, it is still 1 percentage point below the pre-pandemic level.

Federal Revenue Service of Brazil clarifies exemption on alimony payments

The Federal Revenue Service of Brazil released a statement to clarify that the amounts received from alimony are no longer taxed by the Income Tax (IR).

The decision of the Federal Supreme Court (STF) to exclude the incidence of the Income Tax on these amounts, arising from family law, was published on August 23, in Direct Action of Unconstitutionality (ADI) #5422.

Anyone who, in the last five years, from 2018 to 2022, presented an Income Tax Return, including this amount as taxable income, can rectify the declaration and make the adjustment.The rectifying declaration, referring to the year in which the undue collection or retention was exercised, can be sent through the Declaration Generator Program (PGD), on the e-CAC Portal, or through the “Meu Imposto de Renda” application.

Published Normative Instruction that consolidates changes in the general rules of social security taxation

The Federal Revenue Service of Brazil has published a Normative Instruction (IN) that consolidates the general rules for social security taxation and the collection of social contributions destined for Social Security and contributions due to third parties.

According to IN #2.110, the changes deal with for-profit or non-profit companies, bodies and entities of the direct and indirect public administration, temporary work companies, among other groups.

The instruction revokes sixteen previous normative instructions, in addition to other provisions such as the Social Security Regulation, approved by Decree #3048 of 1999. Since January 2020, the Federal Revenue Service of Brazil has written off more than 40% of its regulatory stock.

Real Digital is heading for launch in Brazil

The Laboratory of Financial and Technological Innovations (LIFT) is underway at the Central Bank of Brazil (BCB), which is a launching platform for other innovations with transformative potential. The laboratory creates challenges related to a specific theme and companies and consortia present proposals on how best to resolve the issue.

The current theme of LIFT is precisely the creation of a digital real. This real can be created as a stablecoin whose value is pegged to the Brazilian currency. The difference is that this real would already be created within the BCB regulatory umbrella, meeting the regulatory requirements applicable to the financial sector. It would be an important step towards having a CBDC (digital currency issued by the Central Bank) in Brazil.

The currency can circulate without borders, being able to be bought, sold or used as a means of payment with global reach. For example, someone traveling abroad could load their digital wallet with digital reais, on their cell phone, and make payments or even convert and withdraw money into other currencies from it.

The call made by LIFT was successfully answered. Several companies submitted projects and nine were selected. Including from banks (Itaú, Santander), credit card brands (Visa) and new actors such as the Bitcoin Market.

Interestingly, recently the Meridian conference took place in Italy, focusing on practical applications of blockchain technology and cryptocurrencies, including stablecoins. The theme of the conference was precisely "the urgency of carrying out projects". Not coincidentally, two of the LIFT project participants were there.

Brazil is starting to have its currency in digital format, albeit on an experimental basis, and with close supervision by the Central Bank of Brazil.