SMALL BIG 4

Uncertainty surrounding the testing phase of Brazil's tax reform is putting companies on high alert.

With just nine months remaining before the trial period begins, businesses are growing increasingly anxious, according to experts. The core issue is the lack of critical information needed to develop systems capable of handling the new taxes — the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS) — a process that typically requires at least six months of preparation. This is currently viewed as the most pressing short-term bottleneck. The Federal Revenue has stated that the schedule is in its final stages and will be published soon.

Similarly, the Federal Revenue will be tasked with providing regulations for the CBS. In a statement, the tax authority said it is holding preparatory meetings with associations of software companies and specialists to better understand the needs of both taxpayers and IT and accounting service providers, noting that technical guidance documents are being prepared and released.

A major challenge at this stage involves ERP (Enterprise Resource Planning) software developers. These systems will need to be reconfigured to comply with the new tax rules, yet developers currently lack the detailed specifications required from SERPRO, the government-owned data processing company. When contacted, SERPRO explained that it does not release information about client projects without consent, and in this case, the Federal Revenue is the client.

Another major concern is the need to fully define the legislation, a task that falls to both the IBS Management Committee and the Federal Revenue. This gap in information has fueled further uncertainty among businesses, particularly around how certain tax matters will be interpreted. For instance, companies and tax experts are closely watching how the IBS will interact with the taxes it is set to replace — the ICMS (Tax on the Circulation of Goods and Services) and the ISS (Services Tax) — during the transition period.

As reported by Valor last week, tax advisory firms have identified potential legal disputes due to the temporary inclusion of IBS in the tax base for ICMS and ISS. At least one measure in the Lower House addresses this issue: Supplementary Bill (PLP) 16/2025, introduced by Congressman Gilson Marques, which seeks to exclude both IBS and CBS from the tax base of other levies.

The Lower House is still reviewing the bill that will define how the IBS Management Committee will operate. Once established, the committee will be authorized to launch bids, sign contracts, and take all necessary steps to develop, test, and implement the systems, controls, tax reports, and fiscal documents required for the new tax model. For many, the timeline appears unworkable.

"Despite this, a substantial amount of preparation remains within a compressed timeframe. As experts warn, passing the tax reform law in Congress is only the beginning—the real work is just getting started."

As the first quarter of Brazil's newly regulated Bets market draws to a close, tax liabilities remain unresolved.

The week of March 11 saw the first session of the Parliamentary Inquiry Commission on Bets (CPI Bets), tasked with addressing the market's lingering fiscal and regulatory challenges. A central figure in this discussion was Robinson Barreirinhas, the Special Secretary of the Receita Federal, who was invited to update lawmakers on the coordination of tax collection for the betting sector.

The Bets market was officially sanctioned on January 1, 2025, under the structure of Law No. 14,790/2023, introduced by President Lula da Silva. This law imposes a 12% tax on gross gaming revenue (GGR) for licensed operators and applies a 15% tax on player winnings above BRL 2,824 (around €530). Despite these guidelines, tax implementation has been slow, with Barreirinhas noting that the Receita Federal will only have a "clear picture in six months," as a dedicated team is still analyzing data submitted by companies.

"In my view, any operator that was physically, materially, or even informally present in Brazil should be accountable to our tax authorities."

- Robinson Barreirinhas

While taxing foreign companies retroactively would be difficult, Barreirinhas suggested that legislative changes could hold third-party agents or service providers responsible for facilitating operations with illegal platforms. He added that Receita Federal plans to recover taxes dating back to 2019 from companies currently regulated.

CPI members raised concerns over tax evasion in the betting market, highlighting estimates that over R$50 billion (US$ 8.6 billion) in taxes have gone uncollected since betting was legalized in late 2018. Barreirinhas acknowledged: "We currently have almost 80 companies operating legally, and countless others that are not."

A separate legal issue is how players should pay the 15% income tax on individual prizes over BRL 2,824. Receita Federal recommended that licensed operators withhold this tax at the source, mirroring how lottery prizes are taxed. However, Congress rejected this proposal, insisting instead that players should declare their winnings themselves through annual Personal Income Tax (IRPF) filings. Receita Federal maintained its stance, but Congress did not approve automatic tax withholding by operators.

After a public backlash and a temporary suspension, authorities are reconsidering expanded reporting for fintech transactions.

After facing public backlash, the Brazilian government under President Lula suspended new reporting requirements for fintechs, but officials now say it's time to revisit the issue. The country's tax authority, Receita Federal, is considering reintroducing a plan that would require financial technology companies to disclose transaction values, citing risks related to money laundering through lesser-known payment institutions.

Robinson Barreirinhas, head of the tax agency, told a Senate committee that despite the suspension last year, the government still intends to expand its transaction-monitoring efforts to include fintechs. According to him, financial technology firms — especially those operating through Brazil's Pix instant payment platform — should be held to the same standards as traditional banks when it comes to reporting.

Barreirinhas argued that the ease of opening accounts with fintechs makes them particularly susceptible to being used for illegal financial operations. The tax authority remains worried about the flow of illicit funds in Brazil's economy, particularly through activities such as cigarette smuggling, online gambling, and the use of cryptocurrencies.

Officials maintain that increased oversight of digital financial transactions is crucial to curbing these threats, potentially reigniting debate over the previously shelved regulations.

A proposal to exempt income up to R$ 5,000/month could expand the non-taxable group by 10 million people.

Finance Ministry Executive Secretary Dario Durigan anticipates that a proposed change to exempt income up to R$ 5,000 per month from taxation would expand the exempt group by 10 million people, bringing the total to 26 million Brazilians.

To offset the revenue loss, higher taxes would be levied on the wealthiest individuals — affecting an estimated 150,000 to 160,000 taxpayers.

All discussions on income tax reform, including the R$ 5,000 exemption proposal, are grounded in the principle of maintaining fiscal balance. Durigan stressed that the proposal requires thoughtful debate and should be considered "throughout the year" in Congress. He also noted that the measure is designed to be socially fair while remaining fiscally neutral.

"The measure is designed to be socially fair while remaining fiscally neutral, requiring thoughtful debate throughout the year in Congress."

- Dario Durigan, Finance Ministry Executive Secretary