Brazilian Government Grants New Tax Breaks to Mitigate the COVID-19 Crisis
Due to the continued state of public emergency in Brazil, the Federal Government has granted several tax breaks to mitigate the economic effects of the COVID-19 pandemic, including:
- Postponement of Social contribution tax (“PIS, Cofins, INSS, CPRB and Funrural”) payments for May 2020, normally due in June 2020, to November 2020.
- Import Duty (“II”) exemption for some goods, such as medicines, medical gloves and surgical masks, among others, until September 2020.
- Social contribution tax (“PIS and Cofins”) exemption for medicines with HS Codes 3003.90.99 and 3004.90.99 until October 2020.
- Federal-VAT (“IPI”) exemption for clinical thermometers with HS Code 9025.19.90 until October 2020.
- Tax on Financial Transactions (“IOF-Crédito”) exemption for loans (i) made through the Funding Authority for Studies and Projects (FINEP), or by its financial agents with FINEP funds; (ii) to finance logistics infrastructure projects for roads and railroads through a federal government concession; and (iii) contracted for by the Electric Energy Trading Chamber (“CCEE”), intended to cover, in whole or in part, deficits and the anticipation of revenue, incurred by the concessionaires and permit holders for public utility electricity distribution. This exemption is applicable to taxable events occurring up to December 31, 2020.
- Extraordinary installment plan for tax debits, in order to mitigate the economic effects of the COVID-19 pandemic. This special plan gives taxpayers the right to pay federal tax debts with benefits, such as reduced entry, discounts and special terms
Supreme Court Held that ISS Tax Applies to Franchising Agreements and Betting Services
The Federal Supreme Court in Brazil (“STF”) recently issued two important decisions dealing with municipal Services Tax (ISS) taxable events.
The first one deals with the incidence of this tax on franchising agreements, which, in Brazil, usually include the right to distribute products and services, technical assistance, raw material acquisition, employees training and assignment of the brand’s use, among other obligations. In this case, the court held that franchising agreements are hybrid in nature and are subject to the ISS tax.
Another important decision by the STF refers to levying the ISS tax on betting activities. According to the Supreme Court, the incidence of the ISS tax on distribution services is constitutional and covers the sale of tickets and other lottery products, bingo cards, bets or coupons, sweepstakes and prizes, since gaming activity is classified as a service for ISS purposes.
Based on the decisions above, the Brazilian Supreme Court has been adopting a broader definition of service for tax purposes, which could affect other, similar cases in the future.
The Supreme Court Begins Analyzing the IPI Tax on the Resale of Imported Products
In a tax dispute worth billions, the Supreme Court began analyzing the incidence of the Federal-VAT (“IPI”) on the resale of imported products in June 2020.
So far, Justice Marco Aurélio has held that the tax should not be levied on the resale of imported products. However, the hearing was suspended, due to a request for analysis by Justice Alexandre de Moraes, and there is so far no determination of when the hearing will be resumed.
STJ Applies GATT Provisions to Embed Service’s Costs in the Import Duty Calculation Basis
The Superior Court of Justice held that services related to the handling of goods in ports (such as loading and unloading) must be included in the Import Duty (“II”) calculation basis.
According to the Court, the General Agreement on Tariffs and Trade (“GATT”) provides for the inclusion of expenses related to loading, unloading and handling, and the associated transportation of imported goods to the port or place of import, in the customs value.
The Court’s holding means that the services are included in the calculation of the customs value and are part of the Import Duty calculation basis since these activities are done inside the port or at a customs border crossing.
Draft Bills Propose Digital Services Taxes for Big Tech Companies
In May 2020, a draft bill was presented in Congress to create a Contribution for Intervention in the Economic Domain applicable to big tech companies (so-called “Cide-Digital”). The new tax would be similar to the digital services taxes (“DST”) introduced by other countries, especially in Europe.
Cide-Digital is proposed to be levied progressively, at a 1% rate on amounts up to BRL 150 million; 3% on amounts exceeding BRL 150 million and under BRL 300 million; and 5% on amounts exceeding BRL 300 million.
Additionally, the Senate proposed another bill to establish a differentiated system for the Social Contribution to Social Security (“Cofins”) tax levied on the companies that earn high revenues by means of digital platforms.
Both bills still must be discussed and approved by Congress, in different voting rounds, and be sanctioned by the president.
Extinction of the “Casting Vote” Grants Taxpayers the Right of a New Trial in the Federal Administrative Tax Tribunal
A recent law eliminated the so-called “casting vote” in the Federal Administrative Tax Tribunal, which was a tiebreaking vote by a representative of the tax authorities, in case of a tie vote between tax authorities and taxpayer’s representatives.
Because of this, the Federal Court of Rio de Janeiro granted a Brazilian company the right to a new trial at the Federal Administrative Tax Tribunal level after it lost a dispute with the IRS due to the so-called “casting vote”.
Brazilian taxpayers expect more decisions like this to be issued by the courts and many tax assessments could be reviewed if the courts apply the new law retroactively.
STF Allows the Issuance of Court Orders to Settle Undisputed Parts of a Lawsuit Before the Final Decision
In the specific case of a citizen who legally claimed compensation from the government due to a traffic accident, the Supreme Court held that it is constitutional to issue court orders for the payment of undisputed and autonomous parts of the judicial debt before the final and unappealable decision.
The decision was issued in a judgment of an appeal with general repercussion, meaning that this holding must be adopted in the decisions of all other courts. Additionally, this holding will apply to tax disputes.
STJ Defines its Position on Monetary Correction by Selic on PIS and COFINS Tax Refund
The Superior Court of Justice (“STJ”) held that the PIS and COFINS tax refunds must be adjusted by the Selic interest rate, after a 360-day period from the filing of the refund form, if the authorities do not take a position regarding the refund during that period.
This decision was issued in a trial under the repetitive appeal system, meaning that this holding must be followed in other court decisions.
Supreme Court Ends a Long Dispute Regarding which State Should Charge the ICMS Due on Imports
The Supreme Court held that the ICMS tax on imports should be paid to the state where the legal recipient is established, even if customs clearance occurred in a different state.
The decision analyzed three of the most common import structures: (i) direct import – in which the legal recipient is also the importer; (ii) import on behalf of third parties – the importer (trading company) is responsible for importing the goods on behalf of the legal recipient; and (iii) import on demand – the importer (trading company) buys the imported goods with its own funds, and, by doing so, acts as legal recipient to later sell the goods to a predetermined buyer.
In situations (i) and (ii), the Import-ICMS is owed to the states where the final recipient is established. In situation (iii), however, the tax is due to the state where the importer is established.