Transforming Your Approach to Tax in Brazil Part I: Understanding the Dilemma

Paulo Castro
February 23, 2021

Introduction:

Brazil is the world’s ninth largest economy and a country with a well-earned reputation of being perhaps the most complex tax environment on Earth. The sheer number of laws and mandates, the constant change and the risk of non-compliance resulting in significant penalties and fines is omnipresent. In this three-part blog series, we’ll look at the reasons behind the difficulties and explain how organizations are changing their approach to tax in Brazil to reduce their financial risks.

Feature:

There is no denying Brazil’s importance in the global economy and the role it plays as a gateway to the Western Hemisphere for companies looking to conduct business on an international scale. If you are going to be a serious player in the Americas, you need to be in Brazil.

However, the complex nature of Brazil’s tax system has served as a detriment to many companies in establishing a solid foothold here and becoming a profitable, well-run operation. So much time, money and effort are spent in addressing tax regulations that it is having an adverse impact on business operations.

For background on what makes Brazil so different from many areas of the globe, let’s look at some key statistics. The numbers tell the story of a tax environment that is unwieldy, ever-changing and at times even ruthless.

  • Constant change: There are more than 100 tax modifications made every day.
  • Increasing standards: On average, there are 782 new standards introduced each business day.
  • Cost prohibitive: The costs of managing tax compliance in Brazil has soared. Companies report that 37% of operational costs are related to tax modification.
  • Financial penalties: Costs of non-compliance are increasing rapidly. The penalties in fines for being out of compliance in Brazil now total approximately $35 Billion US dollars annually.
  • Process: It is currently estimated that 80% of companies in Brazil rely on manual processes to manage tax obligations. An unsustainable method based on rate of change.

Businesses have begun to realize that approaching tax the same way they do in less complex markets is a losing proposition. The layers of regulatory controls and oversight compounded by the rate of change demand a new direction. And because it’s fair to conclude that the system isn’t changing, it’s incumbent on businesses to change their approach. Many are reevaluating internal processes and controls as well as where tax should fit into their strategic operating plans.

Sovos recently hosted a webinar featuring João Cavalcanti, Director SAP Partner Solution Center from SAP; Uira Gomes, Global Tax Director from AB InBev and Paulo Castro, Brazil country manager, Sovos. The focus was on how to navigate the most stringent regulatory landscape in the world while undertaking the technology and compliance journey needed to meet the demands of modern tax environments. You can access the full webinar on-demand to hear directly from these experts on strategies, tactics and tools that will set you up for success. I would also encourage you to download the eBook for full explanations of these topic areas.

Now that we covered the root cause of the problem, in Part II we can look at new approaches that organizations are taking to better manage their VAT obligations in Brazil.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Paulo Castro

Paulo Castro has held the position of Country Manager for Sovos Brazil since 2018. He has more than 26 years of experience in the information technology market, in highly competitive segments and in business transformation projects. He began his career at IBM in the PC area and held various managerial and executive positions in Brazil and Latin America. After 20 years he joined SAP Brazil, where he served for 5 years as Vice President of Sales. His legacy has been to create highly motivated teams and business models aimed at exceeding set goals and generating sustained growth through the use of technological solutions and a commitment to the development and success of his team. He believes in the need to establish a clear strategy, in the team and in the daily execution. His main personal characteristics are discipline, resilience and creativity. He is an engineer and holds a master’s degree in Business Administration from EAESP – FGV, with specializations at the Wharton School and the University of Cologne, in Germany.
Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

North America Sales & Use Tax
November 29, 2021
Halstead Bead Inc. v. Louisiana: A Serious Economic Nexus Threat or Minor Blip?

Even those with only a passing familiarity with sales tax understand that the tax rules and the associated compliance requirements are complex in the state of Louisiana (economic nexus only further added to that complexity). There is an argument to be made among practitioners, with strong challenges from states like Alabama and Colorado, that Louisiana is […]

EMEA VAT & Fiscal Reporting
November 25, 2021
France: Two New Declarations to Replace the DEB

As of 1 January 2022, the Declaration of Exchange Goods (DEB) will be replaced by two new declarations, a statistical survey and a VAT summary statement. Current requirements Currently, taxpayers must complete the DEB, which is a single declaration that merges a statistical section and a tax section. Taxpayers must fill out both sections of […]

E-Invoicing Compliance EMEA Spain
November 25, 2021
Spain: New Timelines for the Adoption of TicketBAI in the Basque Country

The Provincial Council of the Gipuzkoa region in the Basque Country recently published Foral Order 608/2021. This establishes the schedule for adopting the TicketBAI (TBAI) obligation in that region. This local regulation also exempts certain natural persons of an age close to retirement from its compliance. What is TicketBai? TicketBAI is an initiative between the […]

EMEA IPT
November 25, 2021
IPT Compliance in Denmark

Continuing our blog series looking at specific IPT-related tax acts around the world, we head to Denmark. This insight is shared in Sovos’ Guide on IPT Compliance. Written by our team of IPT and regulatory specialists, this guide is packed full of insight to navigate the ever-changing regulatory landscape. Non-life insurance tax registration and reporting […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
November 24, 2021
Your Questions Answered: Saudi Arabia E-Invoicing Mandate

In our recent webinar, the team at Sovos discussed the upcoming Saudi Arabia e-invoicing mandate. The webinar covered the finalised rules for Phase 1 of the e-invoicing regime which is due to go live on 4 December 2021 as well as updates to phase 2. There were plenty of questions we didn’t have time to […]