Tag: Tax reform

See the main points advocated by ETCO in relation to Tax Reform

The tax reform has been discussed in Congress for decades and we know that its approval is quite complex, because it directly affects different sectors of society, as well as the various levels of government (Union, States and municipalities).
Since its founding 20 years ago, ETCO has concentrated its efforts on studies, proposals and actions that can contribute to improving the business environment and combating illegal practices, especially with regard to tax issues.
Since 2019, we have followed the discussions on PECs 45/19 (Chamber) and 110/19 (Senate), promoting several debates with renowned experts on the subject.
As a result of this work, we reached a consensus on the elementary principles that must be ensured:

I – Prohibition of any claim to increase the tax burden, in order to prevent the unwanted expansion of the illegal market, which makes the competitive balance unfeasible;

II – Simplification and rationalization of tax regimes;

III – Tax reduction of bureaucracy;

IV – Discipline of Article 146-A of the Constitution, aiming to prevent tax-competitive deviations, under the terms of PL 164/22.

V – Resolution of major tax disputes, notably encouraging the use of the Tax Transaction institute and the improvement of Tax Arbitration as a tool for conflict resolution.

the spanish lesson

In April 2021, Spain decided to set up a commission made up of specialists, recruited from within the government and outside it, to produce a diagnosis of its tax system and, from there, prepare proposals to improve its efficiency and adjust it to the new requirements of environmental taxation. and the digital economy.
Last February, the commission presented, for debates, the “Libro Blanco sobre la Reforma Tributaria”, a consistent 788-page document.
Spain made the right choice. Any reform must be preceded by a diagnosis, which specifies the problem and transparently points out solutions accompanied by their repercussions. Otherwise, it is a mere authoritarian package, which often embeds less than virtuous interests.
The Spanish path is not unheard of. In the 1960s, the Special Commission for Tax Reform was created in Brazil, made up of qualified specialists, whose work resulted in Constitutional Amendment No. 18, of 1965, our most daring reform of consumption taxation.
No one doubts the existence of numerous problems in the Brazilian tax system. However, it is necessary to examine them with depth and impartiality.
The establishment of a commission today could be a good start. Some criteria to guide the work would also help: only reform what is essential, considering the benefits and costs of the change; seek true modernity, which includes environmental taxation, the digital economy, the parsimonious use of extrafiscality, the new financing of social security; curb abusive tax planning, which erodes tax bases and generates competitive imbalances.
The theme, however, should not be limited to tax reform, in the strict sense, but should pay attention to issues that are always ignored: tax bureaucratism, insistently alleged as a pretext for propositions and never faced; fiscal federalism, a patchwork quilt that harbors inconsistent criteria for income sharing and suspicious voluntary transfers, and does not know the specification of the powers of federative entities and the cooperation arrangements between them; and pathological proceduralism, the main source of the astonishing volume of litigation and legal uncertainty.
As Mário Henrique Simonsen, a member of the Reform Commission, taught: “If it is well stated, the most difficult problem in the world will be solved. Poorly stated, the easiest problem in the world will never be solved.”

You won't see any country

Culture must always be valued. Poetry, literature, music artfully express the feeling of a people and arouse emotions, giving meaning to situations that reason often cannot understand.

On my last article I used Grande Pessoa to address the issue of ethics (To be great, be whole). In this I rely on Ignácio de Loyola Brandão, in his work “No Verás País None”, to express a touch of perplexity at the latest events that haunt our beloved and suffering Brazil.

There are so many that I would have to write much more than the space I'm given allows. I will limit myself to two themes that exemplify some of the hardships that I follow closely.

We are aware that  to achieve the desired development, we must ensure legal security that allows for the attraction of investments, the generation of jobs and income. However, far from advancing in this goal, we are moving away from this goal every day. With effort, dedication and a lot of competence, we are going backwards.

Let's see the tax issue: there is always talk of the urgent need to have a "tax reform" that improves our system, is broad and simplifies the fulfillment of obligations and, of course, does not raise taxes even more.

These complex objectives will only be achieved with a broad debate, with the participation of experts in the intricacies of tax law, businessmen, taxpayer representatives, governments, civil society, politicians and that there is a meeting of accounts, all to assess the consequences, risks and the scope of the measures that will be adopted.

But here comes a package that, far from the necessary caution, promotes severe changes in the tax structure: it alters income taxation; dividends; of retained earnings; non-deductibility of interest on equity; it generates new bureaucratic procedures and will increase the tax burden, burden productive investments and, of course, in the end, consumers.

With a strong reaction from industry, commerce, services, liberal professionals, states and municipalities, opinions were presented by the rapporteur, further confusing what is incomprehensible. It's the "puxadinho" logic. Result: unanimous and cohesive repulsion, contrary to the saying that claims to be “dumb unanimity”.

But everything can get worse. The Federal Chamber decides that this matter must be voted on as a matter of urgency! Impairing a deeper discussion, with studies and technical debates.

Taxpayers and productive sectors were run over. The political logic moves away from society, with populist justifications.

Beside this unusual situation, I point out another absurdity. The Executive Branch proposes a Provisional Measure to profoundly change the structure of fuel distribution. On the one hand, allowing the direct sale of ethanol by the mills to service stations and on the other, authorizing the sale of fuel from a different source than that indicated by the banner of the service station. Hasty and inexplicable proposal.

The simple justification is illusory, the price will fall and the consumer will benefit, as if it were possible to reduce the final price without changing the tax structure that focuses on fuels. These misconceptions will encourage non-payment of taxes, a practice that plagues the entire industry.

It will be very difficult, if not impossible, to oversee the distribution chain and, in the case of the sale of a product different from that of a service station, the consumer will be deceived, as they will have the belief that they are supplying a product from a brand they trust and will receive something that does not know the origin.

This amazing initiative, which is applauded by persistent debtors, has never been defended by the industry nor by consumers. A real mistake.

Some questions: How urgent is it for such a disruptive action to be presented via MP? What are the real interests that motivate it? Have the risks been assessed?

These two examples of sudden legislative proposals remind me of Hugo Carvana's film, starring the late Tarcisio Meira, with the title: “Don't worry, nothing will work”.

Hard times. There are methods in these measures, which burden those who contribute and, without validation in studies, do not meet the legitimate interests of society, the consumer, the productive sectors, in short, those who support the State. And all this in the midst of a pandemic, high interest rates and inflation, high unemployment, institutional split, with the holders of powers in clear confrontation.

We lost the sense of planning, of priority, of doing what really matters and establishing a clear divorce between society and the state. By planting erratic rules, we reap more legal uncertainty.

As a lawyer, I am optimistic, but I have to be realistic. Yes, if we stick to this route, nothing will work and we won't have any country, at least not what we want.

Art has made its warnings, we have to listen and react.

*Edson Luiz Vismona is a lawyer, president of the Brazilian Institute of Competition Ethics – ETCO and the National Forum Against Piracy and Illegality – FNCP. He was secretary of justice and defense of citizenship of the State of São Paulo (2000/2002)

**This is content from Bússola, a partnership between FSB Comunicação and Exame. 

Madness without method

“Madness, although it has its method there” was what Polonius had said to Hamlet, according to Shakespeare's narrative.

In the debates on tax reform and related topics, I can see the madness, but I still haven't been able to identify, if any, the method.

It is worth mentioning in these frequent insanities the proposal to create a unique “contribution on goods and services”, contained in bill No. 3.887, of 2020, for which urgency was required in order to subsequently relinquish that urgency under the pathetic allegation of unblocking the vote for “unavoidable” changes to the traffic code.

The project does not even clarify whether the basis for calculating this contribution would be operations or revenue, preferring to delegate the resolution of this dilemma, should the project prosper, to the Judiciary, in a robust contribution to the increase in litigation in the country.

Much has been said about the inadequacies of that bill, but it is worth mentioning the virtue of exposing, on a small scale, the ailments of PEC No. 45, which proposes the institution of a Tax on Goods and Services (IBS) and a enigmatic Selective Tax. We try to cover up these inadequacies by avoiding measuring the repercussions of the projects on prices, sectors and federative entities, under the justification that this information “would not contribute to the debate” (sic).

The most recent pearls of this universe of madness are the disclosure of a preliminary draft supplementary law of PEC No. 45 and discrimination of the sources of financing of the so-called “citizen income”.

The preliminary draft law complementing a Constitutional Amendment Proposal that was not considered by the National Congress, although unusual, helps to reveal the deficiencies of the proposal.

When admitting the vulnerability of VAT to evasion, as a special mention of what happens with this tax in civilized Europe, it is proposed to condition the use of credits to the effective collection of the tax in the previous stage. It is necessary to recognize the originality of the proposal, as well as its surrealism. How could a taxpayer price the goods or services without knowing whether his supplier will collect the tax in the following month?

To manage the IBS, it is proposed to create a National Tax Agency aiming at “implementing cooperative federalism” (sic), made up of employees of the tax administration of the federal entities and directed by a board of directors, chosen by a general assembly, with powers to elect an executive board. This Council would have the competence to issue non-legal rules and proceed with the administrative tax judgment through a body called “Tax Litigation”. There is also an allusion, not translated in the text of the preliminary draft, to a Business Advisory Council. In the history of tax administration, I do not recall a worse proposal than that.

For citizens' income, among other sources of financing, the postponement of payment of precatory payments by the Federal Government was suggested. It is the peak of the season of bad ideas. What is the moral authority of a State that postpones the payment of its debts and charges taxpayers for the timely payment of taxes?

Today, we have more than 4,7 million people infected by Covid-19 and more than 143 thousand deaths, we support a record unemployment rate (13,8%), “we celebrate” the 9,7% drop in the second quarter of Brazilian GDP, agribusiness is impacted by an enthusiastic disregard for environmental policy, there are consistent forecasts about the increase of the population share in conditions of poverty and extreme poverty, the fiscal crisis of States and Municipalities will increase. Despite all of this, we continue, contrary to what is done in the rest of the world, to debate a tax reform that severely harasses economic sectors and raises the price of such essential services, such as health and education, and of books, which enjoy a long-standing tax exemption.

Unfortunately, Brazil does not waste the opportunity to make mistakes.

(*) Everardo Maciel was Federal Revenue Secretary (1995-2002) and is chairman of the ETCO Advisory Council

ETCO President's Message

With the approval of the pension reform, all attention is now turned to tax reform. The time has come for us to resolve the chaotic mess that our tax collection system has become. The theme is of enormous importance for competitive ethics, the business environment and the development of the country. Therefore, one of our main focuses of action this year has been the promotion of debates with authorities on the subject to contribute to the discussions on the reform.

One point to which we are giving special emphasis is the issue of legal tax security, which is not addressed much by the different reform projects. This was the subject of a seminar that we held in June and also our motivation to order a survey from the consulting firm Ernst & Young on Brazilian tax litigation.

The study, which will be released soon, but whose preliminary results are presented in this edition, revealed that the total of taxes under discussion in the different administrative and judicial spheres has already reached the figure of R $ 3,4 trillion, which is equivalent to more than half of the total. GDP of the country.

We also held, in July, in partnership with the Valor Econômico newspaper, the Taxation in Brazil seminar, which added contributions from the economic, legal and tax fields to the debate on reform.

On another front, since May, in partnership with Gazeta do Povo, from Paraná, we have been carrying out the #Dentro da Lei project, which seeks to give more visibility to the problem of the illegal market represented by practices such as smuggling, piracy and counterfeiting of products. We cannot accept what is happening, for example, in the cigarette sector, where the illegal product has already dominated more than half of the market and tax evasion has exceeded tax collection, as shown by a new survey by Ibope that we present in the magazine.

This issue also features an article that I originally published in the Correio Braziliense newspaper to raise awareness among senators about the importance of approving PLS 284/17, which hardens the fight against stubborn tax debtors. Nor is it possible to tolerate this criminal practice that prevails strongly in high taxation segments, such as fuels, tobacco and beverages.

We Brazilians need to understand that we will never have a developed country if we do not assume the defense of ethics and legality as non-negotiable values. Our mission is to fight for that.

Six views on tax reform

Gather different views on the problems of the current tax system and the changes needed to fix or replace it. This was the objective of the Taxation in Brazil seminar, held in partnership with ETCO and the Valor Econômico newspaper in July, in São Paulo. The event had contributions from important names on the national scene.

Tax consultant Everardo Maciel, former secretary of the Federal Revenue and chairman of the ETCO Advisory Council, spoke about taxing the future - and criticized some of the main reform proposals under discussion today in the country.

The assistant attorney general of the National Treasury, Phelippe Toledo Pires de Oliveira, spoke about the inherent complexity of the entire tax system and the excesses of the Brazilian model.

Professor Roberto Quiroga showed a preference for not so drastic changes in the current system and defended measures to reduce tax litigation.

The economist Marcos Lisboa dealt with the relationship between the tax system and the country's development, defended the adoption of some principles for the reform and recommended more attention to international studies to support new proposals.

The federal deputy Efraim Filho, a member of the Special Tax Reform Commission, was responsible for the closure, which showed optimism about the progress of the reform this year in Congress.

Below, we publish a selection of the views they presented at the ETCO and Valor event. Click on the images to read the highlights of each speaker:

"I have the impression that I am on another planet"

Few Brazilians understand tax systems as much as Pernambuco's Everardo Maciel, president of the ETCO Advisory Council. He has followed the theme since the 1960s and accumulates deep academic knowledge with a relevant career in the public sector, which includes eight years as secretary of the Federal Revenue in the FHC governments (1995-2002).

In his lecture at the Taxation Seminar in Brazil, Everardo made strong criticisms of the reform proposals being debated today in Brazil. He stated that they do not deal with either the great contemporary issues of the tax field discussed worldwide or the real problems of the Brazilian system, on which he made an overview.

He also dismantled some clichés about the Brazilian tax model, which he called “mystifications” of those who do not study the topic in depth, and pointed out what he considers to be major mistakes in the main tax reform project under discussion in the Chamber of Deputies, PEC 45 / 2019. Following are excerpts from the lecture:

What the world discusses

“Sometimes, when I look at the discussions taking place in Brazil about tax matters, I have the impression that I am on another planet. Because that is not what is being discussed in the world. We have at least three major tax issues that are being discussed outside of here: first, the erosion of tax bases; second, the taxation of the digital economy; third, a problem to which we still have no answer, which is that of new sources of Social Security financing. ”

Erosion of tax bases

“Tax bases are eroded for a combination of reasons, but notably abusive tax planning, tax havens and the transfer of taxation of profits from countries with higher taxation to countries with lower taxation or without taxation, which are, after all, tax havens. ”

Taxation of the digital economy

“When we talk about taxing consumption we have always been looking at issues such as the provision of services and the sale of goods. Now, we have another phenomenon, poorly known, badly sized, but perhaps the most relevant of all: how to tax information? When you go to Google, which historian Yuval Harari calls ´the attention merchants´, the product is you. We are, therefore, dealing with a phenomenon completely unlike anything known. The information he captures by apparently giving away free information has become, perhaps, the greatest source of contemporary wealth generation. To this end, the European Union approved at the end of last year a turnover tax, a tax on the billing of large companies that convey information and that are in the digital economy. A cumulative tax, which will start to dismantle some theories about cumulative and non-cumulative. ”

New sources for Social Security

"The world changed. The nature of employment has changed. It is a revolutionary change. There are discussions about taxing financial transactions. France and Germany objectively discuss this, which is perhaps one of the only possibilities for creating a new source of Social Security funding. A person as qualified as the Nobel Prize in Economics Robert Shiller is considering taxing robots, in which he is supported by Bill Gates. ”

Clichés and mystifications in Brazil

“Taxation, as it is somewhat unpleasant, gives a remarkable space for mystification, for hasty conclusions about things that have not been studied seriously. The first is the complexity of the tax system. Complexity is inherent in phenomena. What cannot be distinguished is complexity of operability. Tax systems must be operable. They have to be easy. And not necessarily simple, because simplicity or complexity are inherent to the phenomenon. ”

Fantasy about regressivity

“There is a fantasy that, if I tax consumption more, I am in a regressive system. This is just fantasy. It depends on the form of taxation of consumption, it depends on the form of taxation of income. ”

Competition and fiscal war

“There is an inability to distinguish licit tax competition from illicit tax competition, which is the fiscal war. Tax competition has existed since there are taxes. Tax competition here cannot, in Europe it can. If I speak English it is reasonable, if I speak Portuguese it is bad. Tax ruling can, tax incentive cannot. ”

Our biggest problems

LITIGATION: “Litigation has to do with the tax process, not with the tax. It can be any tax, if the process is dysfunctional, there will be excessive litigation. ”

LEGAL INSECURITY: “Which is associated with concepts with low normative or controversial density. But this has to be resolved by the normative way, it does not depend on taxes. ”

BUROCRATISMO: “Bureaucratism refers to accessory obligations, it does not depend on the nature of the tax. The Brazilian tax system is very bureaucratic not because it has ICMS, PIS, Income Tax, nothing like that. It is bureaucratic because it has excessive ancillary obligations. And the domain of ancillary obligations is a separate domain from substantive law. ”

Border between ICMS and ISS

“The biggest problem that exists is the border between ICMS and ISS. How to do this is a challenge to intelligence. The simple solution says: ´the two come together´. Well, but what about the federative issue? How is all the jurisprudence that exists around this? Is it to throw the dirty water in the basin with the child? ”

PEC 45: design errors

“PEC 45 is a magical solution to solve problems, centered, among others, on the principle of destiny. Fate principle is a tax evasion matrix. He wants to institute an IVA, which is an obsolete tax, from 1949, absolutely unable to deal with the digital economy in a world that is thinking about something after taxation of consumption and income. It is stated that, with the adoption of this model, the Brazilian GDP will grow ten percentage points. This is shame, it is bad magic, it has no connection. ”

PEC 45: who wins and loses

“In essence, it is a transfer of taxation. Who wins with that? Financial institutions, large companies in the industrial and commercial fields. But if the aggregate tax burden is constant, someone pays that bill: the 850 taxpayers who are in the presumed profit, who are essentially small service providers, traders and industrialists. The civil construction sector also pays this bill. ”

Service price increase

“The price of medical appointments will rise, school fees will rise, the health plan will rise, which is the only way to balance the new account. PEC 45 increases taxation in these sectors by between 300% and 700%. ”

PEC 45: other problems

SELECTIVITY: “It says that for VAT taxation everything will be the same, so the bread has the same rate as the fur coat. And, to correct this injustice, the poorest are given a 'tax scholarship'. It definitely doesn't work. ”

FISCAL EVASION: “VAT has serious problems with tax evasion, one of which is called ´carousel´, the illicit sale of services to transfer credit. Another: I'm going to see the doctor, he says' my dear, now the rate is 25% ´. What will happen next? 'Is it with a note or without a note?' ”

INCREASED LITIGIOSITY: “More than 150 articles of the constitutional text and the Transitional Constitutional Provisions Act are dealt with, with forty new concepts. This gives litigation for eternity. ”

CONFLICTS BY SHARING: “PEC says that a singular rate in a complementary law will define the sharing and binding of taxes. This is a deadly war between federal entities and between sectors. ”

FIFTY-YEAR TERM: “For fifty years there would be compensation for losses between the federal entities. Does anyone in their right mind believe that there will still be taxes in fifty years - at least as we know them today? ”

INCREASED COMPLEXITY: “For ten years, the taxes that exist today will coexist with the new taxes. That is to say: none of the problems that exist today are solved and new ones are created. ”

“We are going to work around the swamp”

The Brazilian tax system needs changes that value good taxpayers, fight the persistent tax debtors and correct specific problems in sectors that suffer unfair taxation competition, such as cigarettes, beverages and fuels. These were the main points defended by ETCO's executive president, Edson Vismona, at the Taxation in Brazil seminar.

He also recalled ETCO's participation in the approval and implementation of important projects to combat tax evasion in the country. He cited the implementation of physical control systems for the production of beverages and cigarettes, the approval of article 146-A of the Constitution, which authorized treating in a tougher way taxpayers who use illicit tax advantages against their competitors, and the creation of the Underground Economy Index, which has followed the evolution of the informal economy in Brazil since 2003.

Vismona also recalled the two manifestos that ETCO prepared, with proposals on taxation and public security, and which he personally delivered to the main candidates in the 2018 presidential elections.

The following are some proposals that he defended in his lecture:

Bypass the swamp

“In discussions at the ETCO tax group, I remembered the guidance that Abraham Lincoln gave his generals in the American Civil War: 'Gentlemen, if you come across a swamp, don't go in there, turn around'. When I hear the current debates on tax reform, that image comes to me. This can be a swamp, we are going to work around the swamp, because, when we get into this idea of ​​reform, everyone thinks: 'it will reduce the tax burden'. But without reforming the state? ”

“Nobody wants to lose. The State does not want to lose, the Union does not want to lose, the Municipality does not want to lose, we do not want to lose, companies, sectors. Then you walk to a game of ´lose you, I don´t´. That is, each one has a tax reform in mind. Against this background, the idea of ​​the swamp becomes increasingly clear. ”

Tax authorities

“We taxpayers want to keep up with our contributions to the tax authorities and we find all the difficulties. We are the country that spends the most time to fulfill tax obligations. We work for the state. And the State is looking: "Wrong, take a fine, 150% fine and I will take you to Criminal Justice". And then there was this maxim of the correct taxpayers: "I shouldn't, I deny it, but I pay". One of our associates, faced with the threat of taking a criminal report, paid, went to court and, after a few years, won. Look at the burden of this: you paid something you shouldn't have! And he had to go to court to argue. ”

What ETCO stands for

“We have proposals: a program to reduce bureaucracy. There is already a complementary bill, it was discussed in our tax group, with an emphasis on a single tax register, in the simplification of the processes of opening and closing companies, this is now happening with the MP for Economic Freedom; elimination of the requirement for a negative certificate; universal tax compensation; annual consolidation of legislation; and setting a deadline for responses, because the tax administration has no deadline, we do. ”

“Some PLs that we are suggesting: a radical reform of the tax process, there are already two PECs that are being discussed. Establishment of general tax procedural rules, with integration between administrative and judicial proceedings. Restructuring of tax administrative litigation bodies. Monophasia of the ICMS on fuel, as provided for in the Constitution. ”

Stop cigarette smuggling

“Our market is being delivered to the smuggler. Today, 54% of it is in the hands of smuggling. There has been a disproportionate increase in the past four years. Last year, the collection was lower than the tax evasion. Why is that? In Paraguay, the tax on cigarettes is 18%, in Brazil, 70% to 90%. The price difference is half. The low-income class only buys contraband products. Organized crime has already occupied this space. He finances himself with these billions that are evaded. We have to crack down on criminal organizations, but we need to look at the demand. The police say this: it is no use, just because of the repression, we will not change this situation. Our proposal is to maintain the tax burden, but to change the distribution of taxes: the premium brand tax is increased and each company creates a confrontation mark with a lower tax to occupy the smuggling space. It is the only proposal that we believe is feasible at the moment. And we want to move forward with it, because otherwise the projections already show that, next year, the market will already be 60% in the hands of smugglers, with an upward bias. ”

Fighting hard debtors

“The regular tax debtor structures the business so as not to pay tax, he makes money by not paying tax, he erodes competition by not paying tax, he seeks to discuss in all administrative and judicial instances, in all ways. And he conveys the image that he is a victim, he wants to be confused with an eventual tax debtor. He uses this maxim: 'I must, I do not deny and I do not pay'. When the tax authorities finally reach it, the company no longer exists, it has already closed, it is something that will simply get lost. There are billions of reais in the beverage, tobacco and fuel sectors. Our proposal is PLS 284/2017 which is being processed in the Senate. It is the other side of the coin: for the average debtor, we want the tax authorities to have effective collection mechanisms and to be able to use these mechanisms to prevent liabilities from growing in an absolutely unsustainable way. ”

Physical control of drinks

“The physical control of beverages was suspended by the IRS. There was gross corruption in the operation and the government decided to throw the child in with the bath water. Instead of maintaining, perfecting and ending corruption, they preferred to shut down the system, and that already has perverse effects on competition in the beverage industry. ”