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Introduction of Digital Services Tax in Brazil – CIDE-digital

BACKGROUND
Taxation on income of companies which are engaged in technological goods & services have always been a niche and debatable issue among the countries since inception due to the disruptive businesses models which allow companies to operate in a country without having any physical presence, or having its permanent office. These companies even if they establish themselves there, but chances are very high that they shift their profits to the jurisdictions where they are taxed at very low effective rates.
Across the globe increasing trend in digitalization has given the birth to a new tax namely “Digital Service Tax” (DST) which already has been adopted by several European countries like United Kingdom, France, Italy, and Turkey. 
In line with aforesaid countries, Brazil is also in motion to adopt DST. A bill on DST has been proposed in the parliament of Brazil to create tax on the gross revenue of large companies which are engaged in technological products & services.
CONTRIBUTION FOR INTERVENTION IN THE ECONOMIC DOMAIN – DIGITAL (CIDE-digital)
On 04.05.2020, draft Bill no. 2358/2020 was submitted in Brazil’s House of Representatives, which provides for the introduction of DST in Brazil which is known as CIDE-digital. The bill has been proposed with the intention of generating gross revenue from displaying advertising on a digital platform from the companies who are located in Brazil.
As per the proposed bill the determination of the location of companies would depend on the base of IP address that accesses the digital platform, unless it has been tampered with the intention to provide with the location other than the real one. CIDE-digital will principally focus only on companies dealing with the technology that are large on a national and international scale.
OVERVIEW OF THE BILL  
Applicability 
The CIDE-digital will be applicable to the companies who are engaged in the business of technology which are located in Brazil. For the purpose of the CIDE-digital, taxpayers would include legal entities which are domiciled in Brazil or abroad or that are members of a multinational group that receive gross revenue from taxable supplies and exceeds gross revenue thresholds in the previous year as follows:
  • global gross revenue higher than the equivalent of R $ 3 billion (three billion reais)
  • gross revenue exceeding R $ 100 million (one hundred million reais) in Brazil.
Scope
The CIDE-digital will be levied on revenue from:
  • the displaying of advertisements on a digital platform to the Brazil users;
  • the digital platform that allows users to contact and interact with each other, with the intension of facilitating the marketing of goods or services, provided that one of the user shall be located in Brazil;
  • collection of the transmission of data from users and generated by users or during the use of a digital platform. 
Levy
CIDE-digital will be levied progressively on the following rates:
  • 1% on the share of gross revenue up to R $ 150 million.
  • 3% on the share of gross revenue that exceed R $ 150 million up to R $ 300 million.
  • 5% on the share of gross revenue that exceed R $ 300 million.
Due date of payment
The payment of CIDE-digital must be made until the last working day of the month of March of the subsequent calendar year in which the taxable supplies are made.
CONCLUSION 
The CIDE-digital introduced in the parliament of Brazil will bring the conclusion to the debatable issue of tax evasion by various companies in Brazil by shifting their profits into other countries with lower taxation. Best solution to this problem is undoubtedly an international solution that establishes litmus test for taxing the profits of large companies who are engage in technological platform.
As discussed earlier United Kingdom, France, Italy, and Turkey has already initiated with the DST, the main aim of the DST is to collect the revenue in form of tax from the local and international digital service providers which are serving in this respective countries and earn huge amount of revenue.

The logic behind introducing DST in various European countries and Brazil is to collect more revenue from the companies which are operating in large scale on digital platform in such countries and to avoid tax planning by various companies of dividing operations in the country into several minor legal entities. The introduction of CIDE-digital in Brazil might discourage startups who intended to access large digital platform available in Brazil. However time will be the essence to demonstrate the real impact on the applicability of DST.


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