Brazil will enter 2019 at the top of the list of countries with the highest corporate tax rate in the world. France, which currently leads the ranking, will promote a cut already announced by President Emmanuel Macron, which predicts a drop from the current 34.4 percent to 25 percent by 2022. The tax rate on profits of companies in Brazil (charged by the Income and Social Contribution on Net Income) is 34 percent.
The survey was conducted by the Organization for Economic Cooperation and Development (OECD), the group of countries with the world’s most developed economies, which has the highest rates globally. Brazil is not part of the organization, but it pleads for a vacancy.
The global gale of reducing corporate tax burdens gained momentum throughout 2018 with the adoption of a more aggressive policy by the United States, Belgium, and France. President-elect economics team Jair Bolsonaro has already said changes in this area are under study to boost productivity and economic growth.
The subject is the subject of the largest special study being prepared by the Independent Fiscal Institution (IFI) of the Federal Senate and will be released soon to serve as a subsidy to the tax reform debate.
For IFI’s executive director, Felipe Salto, Brazil has a very complex tax system, with a high load, which makes life difficult for those who produce. “IFI does not suggest the menu. Nothing prevents us from thinking about the menu on the table. ”
Historically, the decline in tax rates has been occurring since the 1970s and 1980s due to the competition of the countries for international investments. It was also a way for countries to deal with the movement of multinationals to “move profits” to tax havens, which reduces collection.
With the international crisis and the need for fiscal adjustments, the countries that adopted this practice between 2008 and 2015 compensated for the reduction of the tax burden in companies with the increase of taxation in individuals so as not to have a large loss of revenue.
According to Rodrigo Orair, an expert on the subject and director of the IFI, from 2016 many of these countries have already solved the fiscal problem and started to worry about economic growth, adopting a more aggressive policy of falling.
Ireland pulled the line at 12.5%. And then several countries announced changes to lower levels. The biggest drop was in the United States, which abruptly reduced the corporate income tax rate from 35% to 21% in 2018.
For Orair, countries are reducing the so-called statutory rate (which does not consider the deductions provided in the legislation), but at the same time they are limiting certain deductions of the IR of the legal entities, increasing the base of incidence or doing a series of review of the tax benefits. According to him, US tax reform Donald Trump reduced a large volume of deductions that companies could make.
The expectation is that Brazil follows the policy of Trump. “The big question is whether the team of Paulo Guedes will compensate totally or partially paying dividends on the individual or limiting interest on capital,” says Orair.
The economic team of the Temer administration came up with a proposal for change, but there was no time to send it to Congress. “The time is up, and we did not have the political environment to forward this discussion. Now it’s up to the next government, “says Eduardo Guardia, finance minister. According to him, the proposal was presented to the team of Paulo Guedes, his successor in charge.