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Brazil’s Finance Ministry plans to submit proposals to Congress to tax big tech companies and implement a global minimum tax of 15 percent on multinational corporations in the event of a revenue shortfall, the ministry’s executive secretary said Sept. 1. The plan is in line with global tax cooperation discussions in which Brazil is engaged as the chair of the G20 forum, said the official, Dario Durigan. What would be the impact of such a tax increase on the targeted sectors and on Brazil’s economy? What does the proposal mean for business and investment in Brazil? How likely are tax increases to happen?

Gary Clyde Hufbauer, senior fellow at the Peterson Institute for International Economics: “Brazil already holds the Latin American record for the highest tax burden as a share of GDP: 33 percent. It’s right up there with France and Germany as a poster country for high taxes, but without European efficiency in delivering benefits to the population. Moreover, as a share of public revenue, Brazil already extracts almost twice as much from its corporate sector as the OECD average (20 percent vs. 11 percent). Given this profile, what good will come to Brazil by implementing more anti-business tax laws? Brazil already has a reputation for hostility to corporations in general and multinational corporations in particular. Why put more icing on that cake? Brazilian economic growth is abysmal, around 0.6 percent annually over the past decade, half the mediocre Latin American average (1.3 percent), and a far cry from Chile (2.3 percent). Instead of serving as an errand boy for the OECD Pillar Two mandate (the global minimum tax), Brazil should learn from countries that have prospered through relatively modest taxation. Expressed as a percent of GDP, corporate taxes in Brazil claim 4.4 percent; by contrast, the U.S. figure is 1.7 percent. If Brazil’s Finance Ministry is absolutely committed to the global minimum tax, it should at least announce a few offsetting corporate tax reforms that show a smile, rather than a frown, to the business sector.”

Allison Fedirka, principal at Allonia Group and director of analysis at Geopolitical
Futures: “The proposals reflect two priorities of the Brazilian government: a national tax reform and setting parameters for the relationship between the country and tech companies in the digital age. On the tax front, the government is engaged in piecemeal efforts rather than a comprehensive overhaul. In addition to the proposals, there are efforts to modify the social contribution tax on corporate income, the interest on equity payments and tax waivers on payrolls. Brazil ranks among the most difficult countries globally for paying taxes, according to the World Bank’s ease of doing business rating. Multinationals operating there should already have tax strategies in place and sufficient experience such that the new proposals should not be deal breakers. On the tech side, the government is trying to strategically approach digital development, digital inclusion and technology modernization for the country. Taxes on tech is one part of this broader effort. In May, Brazil’s minister of communications highlighted the lack of tech companies’ contribution to telecommunication infrastructure and development despite their heavy use of it. He suggested then that the tax on tech could fund needed infrastructure projects. Additionally, the government is cracking down on tech companies for potential AI developments and social media. Accommodating these parameters will be the cost of doing business in Brazil. Some form of these proposals may make it through Congress. However, their controversial nature and the lack of a government majority in the lower house means the legislation will likely be watered down if it passes.”

Maria Paula Bertran, associate professor of economic law at the University of São Paulo: “The support of international organizations can significantly aid in the development of a new agenda to tax big tech companies. Organizations play crucial roles in facilitating discussions and creating frameworks that countries can adopt to address the challenges posed by the digital economy. While the involvement of international organizations is promising, the outcomes of these efforts are unlikely to materialize in the short term. The process of reaching consensus on tax reforms, particularly those targeting big tech, is complex and often fraught with political challenges. While Brazil’s population is projected to decrease in the coming decades, the country still presents a significant market for tech companies to thrive. Despite the anticipated demographic shift, several factors suggest that Brazil will remain an attractive destination for big tech firms to maintain a presence and continue investing in the local market. As Brazil’s economy continues to develop and its population becomes more tech-savvy, the demand for tech products and services is expected to rise, as the country’s growing middle class and increasing Internet and smartphone penetration will drive the adoption of various tech solutions, at any tax rate. Finally, it is vital to mention that institutional changes in Brazil are often characterized by a slow and complex process. This sluggishness can be attributed to the necessity of forming a political coalition that frequently stands in opposition to the interests of the executive branch. Even if there is an international consensus considering the need to tax big tech companies, I would expect it at a much slower pace than announced at the beginning of the month.”

Filipe Campante, Bloomberg distinguished associate professor at Johns Hopkins University: “This signaling has two intended goals: one is within the context of Brazil’s G-20 presidency and the choice to make global coordination around taxation a centerpiece of the agenda; the second is the internal battle to bring the fiscal situation under control. The Lula administration has made increased revenues the key approach for delivering on that, and this proposal signals the continued search for ways to accomplish that. As such, I don’t think it makes much sense to talk about what the effects would be, because they would hinge crucially on whether this would take place in a more or less coordinated fashion, and I don’t think the proposal would pass in the Brazilian Congress in the absence of any coordination of that sort.”