Brazil’s New ISS Tax Law Brings Major Changes
Authorities hope a new tax law, Supplementary Law 157/16, will bring some much needed change to Brazil’s utterly complex tax code. The law, which was published on December 30, 2016, modifies the municipal tax applied to services (known as ISS).
The previous municipal tax laws from 2003 gave each municipality the ability to establish its own ISS service tax rate. That led to municipalities fighting for investments by offering tax benefits to companies that agreed to establish their businesses in a particular municipality. The practice became known as the “tax war”. Essentially companies would only do business in those municipalities that offered the lowest tax rates.
Supplementary Law 157/16, however, aims to end the tax war by introducing new regulatory measures. One of the most important features of the law is the inclusion of a minimum two percent ISS tax rate (and a maximum five percent ISS tax rate). Any municipality that continues to offer tax benefits that fail to comply with the new law will have such dealings rendered null and void.
To ensure compliance with the new tax law, Law 8429/92 was also amended so that non-compliant municipal government workers fall under the category of administrative improbity. In such cases, the responsible person may lose his office, have his political rights withheld for a period of up to eight years, be fined up to three times the total amount of the tax benefit that was offered, and face criminal charges.
The law also adds much needed clarification in terms of what activities are taxable as ISS. The law now specifically includes the following activities as falling under its scope:
1.03 – Processing, storage or hosting of data, texts, images, videos, electronic pages, apps, including cloud services and other related services;
1.09 – Provision of audio, video, image and text content via the internet through streaming (with the exception of books, newspapers and periodicals);
17.25 – Text insertion, illustrations and other advertising and publicity materials (except in books, newspapers, periodicals and radio broadcasting, as well as sound and image broadcasting with free reception).
The law may only be applied 90 days after its publication. Full adoption is projected for January 2018.