By Camila Cabral
In August 2020, a new Complementary Law Project (“PLC” – n° 218/2020) was submitted that aims to create the Social Contribution on Digital Services (“CSSD”), whose use of resources would be a basic income program for the population, which is based principally on the losses suffered due to the pandemic of the new coronavirus, as explained in the Project’s justification.
It was mentioned that large technology companies have a business model that does not need a physical presence in other countries for activities to be regularly developed, which makes the criterion of permanent establishment then observed by the rules of international taxation relative. In this way, shifting your earnings to countries where revenue is less taxed becomes easier.
The Project bases in its foundation the BEPS (“Base Erosion and Profit Shifting”), an initiative of the Organization for Economic Cooperation and Development (“OECD”), whose main objective is the study of measures to combat tax evasion through the transfer of artificial profit to low tax countries.
It was mentioned, specifically, in the first line of action of the BEPS, that the objective is to “Identify the main difficulties imposed by a digital economy, with regards to application of international tax rules and develop detailed options to solves these difficulties, while adopting a global approach and considering both direct and indirect taxation ”.
According to the proposal, the tax in question will have as a taxpayer any legal entity that is part of economic groups that earned, in the previous year, gross annual revenues above the equivalent of R $ 4.5 billion reais. The inclusion of billing for the entire group, as pointed out in the text of the project, seeks to effectively reach large conglomerates with international operations.
In other words, if a specific economic group that dedicates itself to digital services generates annual revenue exceeding R $ 4.5 billion in a given year, the following year the Brazilian company will be taxed based on its revenue, exclusively.
The Project determines the taxation of services that gain scale due to the number of users and little need for physical presence, such as digital advertising, brokering the sale of goods and services on platforms and the sale of user data.
The proposal also makes clear its inspiration for this digital services tax legislation from France, which, in summary, attributes a rate of 3% on gross revenue obtained through digital services / activities in which French “users” are considered responsible for the creation of the “Value”, in the operational sense of the word.
The proposed rate for the CSSD is also 3%, and will be applied to the gross revenue earned in Brazil, as already mentioned. However, considering that the company will only be taxed if it belongs to an economic group that had gross revenue in the previous year exceeding R $ 4.5 billion, it can be concluded that the Brazilian government will need to obtain the revenue from the entire conglomerate.
Other bills which have a similar aim are also being processed by the Chamber, namely:
- PL 131/2020: establishes a 10.6% rate for COFINS payable by legal entities that use digital platforms and that have a monthly revenue greater than 20 million dollars for services provided worldwide or greater than 6.5 million reais for services rendered in Brazil;
- PL 3887/2020: establishes the Contribution on Transactions of Goods and Services (“CBS”), and makes it so that this tax would be applied to digital selling platforms in which the seller does not issue an invoice, replacing the previously existing PIS and COFINS ;
- PL 3887/2020: establishes CIDE-Digital, which would be a tax levied on the gross revenue of digital services provided by large technology companies.
As noted, all Draft Laws mention the creation of a contribution, which, by its nature, has its revenue linked to some governmental initiative in favor of social security.
As a tax effect on transactions between companies of the same group, the referred tax paid in Brazil would not be subject to credit taking in the country where the parent company is located, precisely because of its nature of contribution, and not of income tax.