By Francisco Lisboa Moreira, Tax Partner, Bocater Advogados, Brazil
On May 4, a Brazilian law to create a digital tax, the so-called “CIDE-digital,” was submitted to Brazil’s House of Representatives.
Brazil’s digital tax would be a revenue tax, not an income tax. The revenue generated would be applied to the national fund for technological and scientific development.
The proposed law, n. 2358/2020, provides that the tax would be triggered upon the receipt of revenue from advertising to Brazilian users or making available a digital platform that permits users to interact with the objective of the sale of goods or services directly between such users if one user is located in Brazil.
The tax will also apply to the sale of advertisements targeted on users located in Brazil collected from a digital platform or generated by such users.
Brazil’s digital tax would apply to entities domiciled in Brazil or abroad that earned or that are members of a multinational group that earned in the previous-year global revenues exceeding R$ 3 billion (approximately US$ 600 million).
For the tax to apply, the taxpayer must also have gross revenue in Brazil that exceeds R$ 100 million (approximately US$ 20 million).
Brazil’s digital tax will be levied progressively, with 1% levied on amounts up to R$ 150 million (USD 30 million); 3% on amounts exceeding R$ 150 million and under R$ 300 million (USD 30 to 60 million); and 5% on the amount exceeding R$ 300 million (USD 60 million).
Brazil’s digital tax will be levied progressively, with 1% levied on amounts up to R$ 150 million (USD 30 million); 3% on amounts exceeding R$ 150 million and under R$ 300 million (USD 30 to 60 million); and 5% on the amount exceeding R$ 300 million (USD 60 million).
The law mentions that advertising and data revenue earned in several countries must be apportioned based on the proportion of Brazilian users.
Under the proposed law, digital content is defined as any data provided digitally, such as software, applications, music, video, texts, games, electronic files, and similar types of files. A digital platform is an internet or electronic application that enables the electronic transmission of digital data, or that lets users interact with each other. A digital user located in Brazil is defined as any user that accesses the digital platform within a physical device located in Brazil. IP will be used to determine location.
The Brazilian tax authorities will have the power to collect Brazil’s digital tax and create ancillary obligations. The tax authorities must observe Brazilian internet activities regulations and general data protection law, to become effective in 2021.
Tax payments must be made by the last business day in March of the year after the receipt of the revenue.
We expect that many of the discussions regarding proposed or final digital taxes in other counties will now tax place Brazil, including whether the tax is an income tax or a VAT-related tax, discriminatory intent, enforcement, nexus (market activities), and collection.
Francisco Lisboa Moreira is a tax lawyer with 17 years of experience with Brazilian taxation, having participated in various projects involving a broad range of tax questions, including international tax planning, transfer pricing, general tax consulting, due diligence projects and cross-border transactions.
His credentials include an LLM International Taxation at NYU and a Master´s Degree (ongoing) at the University of São Paulo.
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