The Nucleus for Fiscal Studies (NEF) of FGV’s Sao Paulo Law School (FGV Direito SP) held a debate on premium and capital goods taxation in Brazil on May 23. This subject was regulated by Law No. 9.532, dated 1997, and amended by Law No. 12.973, dated 2014, setting different tax rates for premium and capital goods taxation for business operations.

On the one hand, this regime established a series of “benefits” for companies that invested mainly in the privatization processes during the 1990s, allowing the expansion of what is currently known as tax planning. On the other hand, the gaps in the law and the tax rate differences led to an outburst of litigation and issues in this area in courts.

Bernard Appy, Director of the Center for Fiscal Citizenship (CCiF), addressed the issue from an economic point of view. “Regardless of the commercial transaction model to be adopted, the tax regime has to be the same”, he said.

According to Appy, Brazil addresses the issue of premium and capital taxation from a single perspective, which is wrong.  “Buyers do benefit from the law, but if the seller is not taxed, then we have a problem. We need to cover both sides”.

According to Vanessa Canado, Director at CCiF and a professor at Direito SP, the issue of neutrality is relevant from a global standpoint. “The way a commercial transaction takes place cannot be influenced by the taxation mechanism. We create an unnecessary deficiency and a distortion of economic effectiveness”, said the expert.

For Canado, it’s not easy to bring this discussion to an end, because the context is all contaminated by interests in negotiation. “A reform of the legislation can solve this tax planning issue by removing the difference between the tax rates. It is somewhat intuitive to choose the path of a lower rate”, she said. 

For lawyer Fernando Tonani, Law No. 12.973 was very important to address several gaps in the 1997 law, setting forth several requirements to establish the different premium regime. “However, the most important thing to think about in the future of the regulation of premium and capital taxation is a law that guarantees the safety and stability of enterprises and prevents them from being fined by authorities based on dubious parts of the regulation”.

Lawyer Daniele Souto supports a greater coordination between the law and case law. “Even if you don’t agree, there are several experts who have dedicated time and effort to solve some pending issues, such as the case of the qualified fine regulation, which abides by prior case law. The issue is to figure out how to integrate this case law into the actual legislation”.