Brazil Is Entering The Digital Tariff War

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Posted by Chrysa K. Kazakou on Wednesday, May 20th, 2020, 1:36 PM PERMALINK

On May 4, the Bill 2358/2020 was introduced to Brazil’s House of Representatives for creating a federal digital revenue tax, called the Contribution for Intervention in the Economic Domain – Digital “CIDE-digital.” Both chambers of the National Congress composed of the Federal Senate and the Chamber of Deputies, still need to discuss and approve the bill, in different voting rounds. A global push to tax the digital services of Silicon Valley tech companies is giving the impression of a new tariff war.

Brazil’s digital tax would apply to entities domiciled in Brazil or abroad earned in the previous-year global revenues, exceeding approximately $600 million. “CIDE-Digital” also would be levied to the sale of advertising on a digital platform to users located in Brazil. The digital tax would be imposed progressively on gross revenue from taxable supplies as follows: zero to BRL 150 million: 1.0%, BRL 150 million to BRL 300 million: 3.0%,over BRL 300 million:5.0%.

The Brazilian tax system is globally known for its enormous complexity. This tax reform will affect how the world’s largest economies tax all multilateral businesses. The tax framework needs new approaches that could be found by close consultations with the companies themselves, recognizing the complexity of the digital economy.

According to  International Trade Barrier Index that ranks a total of 86 countries on their use of trade barriers, Brazil has a score of 5.02 with 10 indicating the highest use of trade barriers. Data reveal that Brazil is the most isolated economy in the G-20 Group.

The European Commission had also proposed a turnover tax rate of 3 percent on revenues derived from online advertising services, online marketplaces to businesses with annual worldwide revenues of $868 million, and total EU revenues of $58 million. However, the proposal was laid aside in early 2019, because several EU member states opposed the tax. The new European Commission has announced that if the OECD does not reach an international agreement on the taxation of the digital economy in 2020, it will restart its work on the DST.  Similar to the EU proposal, France’s DST is levied at a rate of 3 percent and applies to online marketplaces and online advertising services.

The UK proposed a 2 percent tax on revenues thresholds set at $638 million globally and $32 million domestically. The tax went into effect in April 2020. In Chile also services provided in digital form will be subject to 19% VAT starting in June. Chileans will have to start paying almost a fifth more for video streaming service Netflix in June.

The revenue-based taxes on large digital corporations can reduce international trade and commerce. The progress from physical to digital domains requires creative taxation, which complies with bilateral tax treaties. Applying a tax to revenues unconnected to economic value creation violates prevailing international tax fundamentals.

Photo Credit: Sergio Souza

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