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Brazil Plans to Set Up a Digital Tax

Brazil Plans to Set Up a Digital Tax

The latest country to join the unilateral digital tax craze is Brazil, who is in the process of discussing the implementation of a levy on tech companies operating in the country.

The proposal, which was presented to Congress in August, plans to introduce a “Social Contribution on Digital Services” that would tax the gross income accrued by tech companies from the provision of digital services at a local level.

This push, as in most recent cases, stems from the government’s need to boost revenues to stave off the economic crisis wrought on the country by the COVID-19 crisis.

Proceeds from this tax will be used to fund the government’s minimum income wage programs.

Taking France’s digital services tax as a model, as explained by Francisco Lisboa Moreira and Doris Canen for MNE Tax, Brazil’s proposal defines “digital services as the provision of any type of data digitally and including electronic files, applications, software, music, video, texts, games and related items, and the availability of electronic apps that may allow the transfer of any digital content between users.”

This tax will specifically target large tech companies that have made more than 820 million dollars in global revenue for the previous calendar year.

Brazil Plans to Set Up a Digital Tax Revenue

More specifically, Lisboa Moreira and Doris Canen write, the levy “will be triggered upon the generation of revenue deriving from advertisement on a digital platform for a user located in Brazil (device located in the country); the availability of a digital platform that may allow interaction between users aiming to sell goods or to provide services between such users, as long as one of them is located in Brazil; and the transmission of data of users located in Brazil and collected during the use of a digital platform or generated by these users.”

Furthermore, they explain that the proposed legislation “requires that the cross-border data revenue related to advertisement and data transmission be apportioned to the exhibition to Brazilian users (advertisement) and prorated based on the number of Brazilian users (data transmission).”

In terms of the tax rates to be applied, Ricardo Marletti Debatin da Silveira and Rogério Gaspari Coelho of Machado Associados write in the International Tax Review (ITR) that the legislation “establishes progressive rates: 1% for revenues up to BRL 150 million; 3% for revenues exceeding BRL 150 million and up to BRL 300 million; and 5% for revenues above BRL 300 million.”

Despite this progress, there are still certain problems with the legislation that need to be ironed out.

As pointed out by Debating da Silveira and Coelho in ITR, the proposal fails to “define how to collect the tax from the companies without physical presence in Brazil.”

It’s obvious by now, they remark, that one of the fundamental issues of any DST being designed throughout the globe is the question: “how to properly and efficiently tax foreign tech players?” 

Will Brazil pull through with its own digital services tax as other countries have done in the recent past? Or will the country ultimately wait for the OECD-led negotiations that are supposed to hash out a final proposal this October?

Stay tuned for more from the digital taxation world!