Alana Aiche do Carmo Dahrouj
Lawyer at Marcos Martins Advogados
Tax reform has always been on the agenda when it comes to Brazilian taxation, so all taxpayers with the expectation of improving taxation as a whole yearn for a reform of the Brazilian tax system.
Recently, with the presentation of Bill No. 3.887/2020 by the Ministry of Economy, tax reform has once again taken center stage, arousing the curiosity of taxpayers about the scenario that could be installed.
The reform proposed by the Federal Government is being presented in “slices”, with only the first part having been sent for discussion so far, on July 21.
This initial phase of the project consists of instituting the so-called CBS – Contribution on Goods and Services. This is a Social Contribution that will be levied on income from goods and services, including imports of goods and services, and income from the assignment, license and use of rights.
The CBS was designed to unify and simplify two federal taxes levied on the gross revenue of legal entities, PIS and COFINS. These two taxes, created in 1970 and 1991 respectively, are considered to be quite complex in the Brazilian legal system, with around 2,000 pages of legislation.
Under the terms of the bill presented, the CBS rate will be a single 12% , and as a general rule, it will be non-cumulative. In other words, as with ICMS, it will be non-cumulative , and the amount paid in the previous chain will have to be offset against the amount due in the subsequent chain.
This means that, as a rule, there will be no cumulative system, in order to avoid the so-called cascading effect.
As usual, there is an exception to every rule. The cumulative regime was only maintained for the activities of financial institutions, whose rate was set at 5.8%, higher than the current rate for these activities.
It can be seen that the way CBS is taxed is similar to the non-cumulative regime attributed to the IPI and ICMS, where the credit received is directly related to what was actually paid in the previous chain, so that for exempt goods there will be no accounting of these credits.
Another point of note in the proposal to establish the CBS is the so-called single-phase system. In our current taxation system, as the name implies, this occurs in cases where PIS and COFINS are only levied at one stage of the chain.
We can currently see this regime in various activities, especially in the field of medicines, perfumery, cigarettes and gasoline. The CBS proposal removes the single-phase regime from practically all activities, maintaining it as an exception only for the fuel and cigarette industries.
One of the most important differences presented in the creation of the CBS, and one that has attracted a lot of attention, is the fact that the legislation itself provides for the exclusion of any tax that may be included in its calculation base.
This has been a problem for years in our current form of taxation, which implies the inclusion of various taxes in the tax base, masking the real tax burden. In this case, the problem arises because, in most situations, one tax cannot be included in the calculation basis of another because it corresponds to the income of a third party and not the company, in this case, the public entities that collect it.
This is what the STF recognized in the ruling with recognized general repercussion, determining the exclusion of ICMS from the PIS and COFINS calculation basis.
In the case of CBS, the exemptions previously attributed to PIS and COFINS were maintained, such as in the case of social assistance entities, temples of any worship, and products from establishments belonging to the Manaus Free Trade Zone and free trade areas.
Finally, having considered the projected CBS, we conclude that it is still too early to talk about the possible impacts of this first part of the tax reform. In order to do so, it is necessary to analyze the reform as a whole, so as to have a clear view of all the changes in the current scenario, which is not possible if it is presented in a piecemeal fashion.
Regardless of how it is presented, one thing is certain: it is hoped that once a reform is fully defined, it will be truly effective in reducing the tax burden and bureaucracy of the current system and that it will be fair to taxpayers, so that it does not need future patches or repairs.
Marcos Martins Advogados puts its tax team at your disposal for further clarification on the subject.
