International Tax Newsletter - Novembro 2023

Bill that expanded payroll tax relief is completely vetoed

The proposal to extend the payroll tax exemption for 17 sectors of the economy until 2027, accompanied by a reduction in contributions to Social Security in small municipalities, was completely vetoed by President Luiz Inácio Lula da Silva this Thursday (23). This policy, implemented in 2011 as a temporary measure, had been successively extended, but now loses its validity in December this year due to the presidential veto.

The project, approved by the Economic Affairs Committee (CAE) of the Federal Senate on October 24th, followed urgently by the plenary on the same date, sought to change the social security contribution of labor-intensive sectors, transforming it from 20% payroll for variable rates between 1% and 4.5% of gross revenue. Since its implementation in 2011, this measure has especially favored the services sector, characterized by low revenue compared to other economic areas, such as certain industrial segments, and a high employment intensity.

The 17 sectors covered included call center, communication, clothing and clothing, footwear, civil construction, construction companies and infrastructure works, integrated circuit design, metro rail passenger transport, vehicle and body manufacturing, leather, machinery and equipment, protein animal, textile, information technology (IT), communication technology (ICT), public road transport and road freight transport.

With the presidential veto, the 20% rate will be restored from January of next year. Furthermore, the bill also sought to reduce the contribution rate to Social Security in small towns, from 20% to 8% of the payroll. This reduction would benefit municipalities with up to 142,633 inhabitants, excluded from the reserve quota of the Municipal Participation Fund.

Unlike large and medium-sized cities, which have their own pension schemes for local public servants, small town halls contribute to the National Social Security Institute (INSS). With the presidential veto, these city halls will return to paying the full rate in January.

Despite the Presidential veto, it is expected that the Brazilian Congress revokes it, therefore the reductions shall still be effective in 2024.

Treasury reduces GDP growth projection from 3.2% to 3% in 2023

When presenting the new projections for GDP and inflation, the Ministry of Finance reduced its estimate of the growth of the Brazilian economy in 2023 from 3.2% to 3.0%. For 2024, the growth revision was from 2.3% to 2.2%. According to the government, the forecast is that inflation for the year will close at 4.66%, with a correction to the previous estimate of 4.85%. The information was released this Tuesday (21/11), through the Macrofiscal Bulletin.

Even with the review, the government's projection is still more optimistic than that of financial market agents. According to the latest Focus Bulletin, which summarizes market expectations, GDP growth in 2023 should close at 2.85% and, for 2024, at 1.50%. The information was released on Monday (11/20) by the Central Bank.

Regarding inflation, the forecast is optimistic when revising the Broad National Consumer Price Index (IPCA) from 4.85% to 4.66%. From this perspective, the government would end the year meeting the stipulated inflation target, which allows the index to fluctuate between 1.75% and 4.75%. For the SPE, “the disinflation process occurred faster than initially projected, mainly for the underlying components, taking inflation within the range proposed by the target regime as early as 2023”.

Conversely, the government revised the IPCA forecast for 2024, from 3.40% to 3.55%. The new estimates are within the inflation target for next year, which could range between 1.5% and 4.5%. According to analysts, the review considered the increase in ICMS announced by the states and the new expectations for the foreign exchange and commodity markets. 

Bill that taxes the super-rich and offshores is approved in the Senate's CAE

The Senate's Economic Affairs Committee (CAE) approved this Wednesday (11/22) PL 4173/23, which deals with the taxation of offshore companies and exclusive funds, used by the super-rich. In the committee, the rapporteur, senator Alessandro Vieira (MDB-SE), partially accepted four drafting amendments, which led to a symbolic vote on the text.

The editorial amendments accepted included the provision that subsidiaries abroad will be determined on an individual basis observing Brazilian accounting standards, instead of “Brazilian commercial legislation”. The article that provides for considering shares traded on foreign stock exchanges in stock index funds as FIA abroad was also amended, adding the phrase “even if they are not admitted to trading on stock exchanges abroad”.

Another amendment accepted establishes the concept of stock exchanges and over-the-counter markets only as centralized trading systems, excluding the term “multilateral” from the text. The latter suggests the inclusion, in article 40, of the term “directly or indirectly”. Therefore, the final wording of the text says that the investment fund that invests, directly or indirectly, at least 95% of its net worth in specific funds, will be subject to the 15% IRRF rate.

The project is part of the economic agenda presented by the government, with an estimated revenue of around R$20 billion between 2024 and 2026. The approved version maintains a single rate of 15% on income abroad, without any deduction basis and the possibility of updating the stock value of exclusive funds at a rate of 8%.

The project now goes to the plenary. If the senators maintain the text without changes on the merits, the PL will be sanctioned.

Senate Committee approves tax for streaming services

The Senate's Economic Affairs Committee (CAE) approved in the first round on Wednesday, 22, an alternative text by senator Eduardo Gomes (PL-TO) that regulates video on demand (VoD, transmitted via streaming) and obliges them to collect the Contribution for the Development of the National Film Industry (Condecine). The proposal (PL 2,331/2022), unanimously approved with 24 votes, still needs to go through a new round of voting at the CAE.

The project regulates the provision of video on demand services, audiovisual content sharing platforms and television via internet protocol. The regulation is valid for all companies based in Brazil, regardless of the location of the headquarters or the infrastructure to provide the service.

Condecine will be charged annually and will have a maximum rate of 3% of the companies' gross revenue, including earnings from advertising and excluding direct taxes and commissions due to marketing, broadcasting or service distribution partners. The exclusion of partner committees was established in addition to the vote of rapporteur Eduardo Gomes.

Companies with annual revenues above R$96 million will pay 3%. Platforms with revenues between R$4.8 million and R$96 million will collect 1.5%. For services with revenues of less than R$4.8 million, the rate will be zero. Condecine will have the value reduced by half for streaming whenever at least half of the content in the catalog is national, a forecast that was included in the substitute now approved by the CAE.

To calculate the contribution due, companies will be able to separate the revenue obtained from the streaming service from the profit they may have earned from other services, such as the offering of sports and journalistic content and the sale of advertising spaces related to these events, for example. Condecine will also cover the payment of income for the exploitation or acquisition of audiovisual works at a fixed price from producers, distributors or intermediaries abroad.

Extended for 60 days Provisional Measure that eliminates the income tax rate for foreigners 

The Provisional Measure (MP) was extended in Congress for another 60 days, which eliminates the Income Tax (IR) rate for foreigners or residents abroad on income from certain investments made in Brazil.

The decision was published in the Official Gazette (DOU) and also points to the postponement of the deadline for the MP that reduces the IR on remittances made to cover travel expenses outside the country. The measures had been sent by the President of the Republic, Jair Bolsonaro, to the Legislative at the end of September and, as they have not yet been voted on, they would lose their validity.

The first MP withdraws the collection of IR on income obtained from debentures and financial bills issued by companies, banks and national credit unions and distributed in Brazil to foreign investors or residents abroad. The zero rate also extends to income earned in Investment Funds in Infrastructure Participation (FIP-IE), Investment Funds in Participation in Intensive Economic Production in Research, Development and Innovation (FIP-PD&I).

In the case of remittances, the text reduces the rate of the Withholding Income Tax (IRRF) on the amounts intended to cover personal expenses, abroad, of individuals, on trips or on official missions.

The reduction applies to transfers with a limit of R$ 20,000 per month.

In 2023 and 2024, the IRRF rate will increase from 25% to 6%. In 2025, the tax will rise to 7%, 8% in 2026, and 9% in 2027.

CARF plans to adopt a virtual plenary system to speed up the body’s trials

In order to speed up judgments at the Administrative Council of Tax Appeals (CARF), the body plans to adopt the virtual plenary system for sessions.

The virtual tool is also an alternative to increase federal revenue and help the government in its attempt to eliminate the public account deficit in 2024. According to an investigation carried out, the virtual system has already been developed by the Federal Data Processing Service (Serpro) since the middle of this year.

The Ministry of Finance plans to have the platform ready in December so that it can be used next year.
What is known is that the intention is for the virtual plenary to function in accordance with that of the Federal Supreme Court (STF). Through the virtual plenary system, the following can be done:

•    Votes from rapporteurs and other advisors;
•    Insertion of reports;
•    Memorial for taxpayers and PGFN;
•    Consultation and agendas and minutes of trial and oral arguments

In the body, it is intended that the system under development will be used both for virtual trials and also for videoconference sessions.