International Tax Newsletter - Julho 2024

Debate on rates for Tax Reform will be held in 2025

With the imminent approval of the tax reform regulations (PLP 68/24) by the Federal Senate and its presidential sanction, government and National Congress technicians are preparing to begin detailed discussions on the rates of the new taxes on consumption, which will be discussed at a later stage: the Tax on Goods and Services (IBS), the Contribution on Goods and Services (CBS) and the Selective Tax. These taxes represent a significant change in the Brazilian tax system.

The IBS and CBS taxes need to be defined through a Senate resolution, while the Selective Tax will be regulated by a bill. With the CBS and the Selective Tax coming into full effect in 2027, the year 2025 will be crucial for debates on pending regulations. The Federal Court of Auditors (TCU) must approve the calculations of the taxes by September 15, 2026, with the Senate having until October 31 to vote on the final resolution.

The tax reform stipulates a ceiling of 26.5% for the combined IBS and CBS rates. However, this rate will be reviewed annually to ensure that the tax burden remains constant. The legislative consultant of the Chamber, José Evande Carvalho Araújo, explains that states and municipalities will have autonomy to establish their IBS reference rates, and may adjust them through their own legislation.

“Each federated entity may or may not adopt the reference rate. If they choose to change it, they may do so through a specific law,” stated Araújo.

Another expected development is the implementation of the split payment mechanism in 2026, with testing for the CBS beginning. This mechanism will allow companies that purchase inputs to obtain immediate credit for taxes paid, optimizing cash flow and reducing operating costs.

This transformation in the tax system aims not only to modernize and simplify the collection process, but also to promote greater transparency and efficiency in tax management. The expectation is that these changes will boost the economy and ensure tax justice for all taxpayers.

Minister of Finance reveals that government should finalize income tax reform proposal in the 2nd semester

Minister of Finance, Fernando Haddad revealed in an interview that he believes the government will only be able to finalize the bill that reforms income taxation in the next semester.

In practice, this reform could change the Personal Income Tax (IRPF) table, as well as the Corporate Income Tax (IRPJ), in addition to the taxation of profits and dividends and investment funds.

According to Haddad, “there are some scenarios on how we see the opportunity to make a reform to improve income distribution.” And if possible, promote either an increase in the exemption brackets or a reduction in the tax rate. These are possibilities on the table now in the second semester.”

It is worth remembering that, so far, the National Congress has approved the reform of consumption taxes.

In addition, the main rules have already been enacted and the regulations are in process, with the transition to the new model being gradual, between 2026 and 2033.

Online betting companies will have new rules and must prevent money laundering

Fixed-odds betting operators, popularly known as "bets", authorized to operate in Brazil, face new requirements to strengthen mechanisms to prevent financial crimes. The Prizes and Bets Secretariat of the Ministry of Finance established that these companies must implement robust systems to prevent money laundering, terrorist financing, proliferation of weapons of mass destruction and other illicit activities.

Published in the Official Gazette of the Union on July 12th, the decree imposes fines of up to R$20 million and the possibility of revocation of the operating license for companies that do not comply with the new rules. This measure is part of the regulation of the fixed-odds betting law, which was sanctioned in 2018, but whose detailed rules began to be implemented in July 2023.

Betting operators must develop and implement internal policies that include the appointment of those responsible for complying with the new rules, in addition to programs to comply with Brazilian legislation. These policies should cover information and training activities for employees, partners and third-party service providers, as well as mechanisms for identifying, assessing, analyzing and mitigating risks.

To ensure security and compliance, companies will need to identify and monitor players, users, employees and service providers who may pose risks. Suspicious activity and new products that facilitate crime will need to be monitored and analyzed on an ongoing basis. These actions will include detailed records with periodic monitoring and evaluation of the effectiveness of the policies adopted.

With the ordinance now in force, enforcement to ensure compliance with the rules will begin on January 1, 2025. The implementation of these measures aims not only at legal compliance, but also at promoting a safer and more transparent betting environment in Brazil.

Superior Court of Justice decides to impose a 4.6% higher PIS/Cofins rate on Selic

The 1st Section of the Superior Court of Justice (STJ) ruled that the Social Integration Program (PIS) and the Social Security Financing Contribution (Cofins) are levied on the Selic rate. As a result, the Selic interest rate may cost taxpayers more than they had imagined.

With the publication of the STJ ruling, the Court prevailed in its understanding that it would be treated as operating income, with a rate of 9.25%, unlike the Federal Revenue Service, which treats it as financial income, whose rate is 4.65%.

From now on, this understanding may lead taxpayers to have to pay the difference between the two rates, according to lawyers.

It is worth noting that the 1st Section of the STJ, in June, ruled that PIS and Cofins are levied on Selic interest received in cases of repeated tax overpayment, as well as on the return of court deposits or payments made by customers in arrears.