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PARA EMPRESAS INTERNACIONAIS

IN THIS NEWSLETTER:

• TAX REFORM – NEW LAYOUT FOR THE NOTA FISCAL (E-INVOICES)
• TAX REFORM AND PRICING STRATEGY
• BRAZIL AUTO MARKET OFFERS WARNING FOR US TARIFF POLICY
• MORE TAXES ON INTERNET SERVICE PROVIDERS IN BRAZIL
• ROADSHOW: BPC PARTNERS WILL BE IN PANAMA CITY AND SAO FRANCISCO/PALO ALTO END OF AUGUST

TAX REFORM – NEW LAYOUT FOR THE NOTA FISCAL (E-INVOICES)

In response to upcoming tax reform measures, the Brazilian government is implementing changes to the layouts of electronic invoices (e-invoices). In March 2025, the National Council of Finance Policy (ENCAT) released an updated version of Technical Note 2025.002. This revision introduces new fields and validation rules to accommodate the future implementation of the new Tax on Goods and Services (Imposto sobre Bens e Serviços – IBS) and the Social Contribution on Goods and Services (Contribuição Social sobre Bens e Serviços – CBS).

As a result, the layouts for both business-to-business (B2B) and business-to-consumer (B2C) e-invoices — specifically NF-e Model 55 and NFC-e Model 65 — will be modified. The government also published an updated implementation timeline, as follows:

• July 1 to September 30, 2025: The changes introduced by Technical Note 2025.002 will be available in the testing environment of the e-invoice portal. This anticipates the previous rollout date of September 1, 2025, and extends the testing period for taxpayers.
• October 1 to December 31, 2025: The changes will be deployed to the production environment, and the use of the new layouts will become mandatory. However, taxpayers will not be required to complete the new fields related to IBS and CBS during this period, as those taxes will only take effect in 2026.
• Starting January 1, 2026: The new fields and validation rules will become fully effective and must be properly populated to reflect the IBS and CBS tax obligations.

TAX REFORM AND PRICING STRATEGY

The Brazilian tax reform represents a significant shift towards a modernized, VAT-like system. However, the 7-year transition means businesses must deal with the complexities of the old system while adapting to the new one. Legacy taxes will still impact profits and losses, requiring ongoing pricing adjustments and careful exclusion from the CBS and IBS taxable base. For companies operating in Brazil, including multinational corporations, the reform introduces both opportunities and challenges. Strategic tax planning, system adjustments, and pricing reconfigurations will be essential to navigating this transition smoothly.

Brazil’s long-anticipated tax reform, designed to simplify one of the world’s most complex tax systems, introduces two new taxes: the Contribution on Goods and Services (CBS) at the federal level and the Tax on Goods and Services (IBS) at the state and municipal levels. These will gradually replace several existing taxes over a seven-year transition period, ultimately aligning Brazil’s tax framework with international best practices, increasing transparency, and reducing litigation.

Although full implementation will span nearly a decade, companies must begin adapting now. The reform will significantly impact pricing strategies, cash flow management, and financial reporting. A key shift lies in the exclusive nature of CBS and IBS: unlike current levies such as PIS and COFINS, which are embedded in costs, CBS and IBS will function more like value-added taxes (VATs). They will not affect profit and loss directly, as businesses will act only as intermediaries, collecting taxes to be passed on to consumers.

As a result, entities will see structural changes in how indirect taxes affect their financial reporting:

• CBS and IBS won’t be included in revenue or operating costs because these taxes are exclusive and don’t affect profitability.
• Businesses will need to adapt their accounting systems to properly record these taxes as separate items without distorting earnings.
• The credit mechanism for CBS and IBS will ensure non-cumulative taxation, reducing tax costs in the supply chain.

However, the transition to Brazil’s new tax regime is anything but simple. While CBS and IBS are set to replace existing taxes such as PIS and COFINS, the current system will remain in effect throughout the seven-year transition period. As a result, businesses will need to maintain compliance with both frameworks, which will continue to affect financial statements, pricing, and tax planning for years to come. One of the reform’s most important provisions is the mandatory exclusion of legacy taxes—including PIS, COFINS, ICMS, and ISS—from the taxable base of CBS and IBS. This rule is critical to prevent tax cascading and to ensure that the new levies are not inadvertently inflated beyond their intended scope.

This provision is particularly relevant when structuring pricing models during the transition, as it ensures that:

• Double taxation is avoided, by clearly excluding legacy taxes from CBS and IBS calculations;
• Financial statements must still reflect the old taxes, since they continue to influence operating costs and revenue;
• Tax credits under the existing regime remain applicable, demanding strategic tax planning to manage and optimize cost recovery.

To successfully manage this dual tax environment, companies operating in Brazil should focus on three key areas:

• Adapt Pricing Models Gradually: Companies must continue to factor in gross-up calculations for legacy taxes, even as they prepare for the full implementation of CBS and IBS. Accurate modeling will be essential to prevent underestimating the total tax burden during the transition.
• Strengthen Financial Planning and Reporting: The coexistence of old and new tax regimes will significantly increase reporting complexity. Businesses should implement parallel tax calculations and update ERP systems to ensure proper segregation of legacy and reform-related tax data, particularly to exclude outdated taxes from CBS and IBS assessments.
• Prioritize Cash Flow Management: Although CBS and IBS do not affect profit and loss directly, they will impact liquidity. Businesses must plan for potential delays in input tax credit recoveries and manage working capital proactively—especially in industries that rely heavily on tax incentives and fiscal benefits.

By addressing these challenges head-on, companies can position themselves to navigate Brazil’s tax reform with clarity and compliance. The transition requires not only regulatory understanding but also strategic adjustments across pricing, finance, and operations (Source: GTECS – Association of Tax Professionals in Tech).

BRAZIL AUTO MARKET OFFERS WARNING FOR US TARIFF POLICY

Over a decade ago, Brazil introduced sweeping protectionist measures in its automotive sector, promising to stimulate local manufacturing, secure employment, and enhance product quality. Instead, the result has been a wave of plant closures, job losses, and stagnation in both production and technological progress. Today, Brazilian consumers often pay up to 50% more for the same vehicle models sold in neighboring countries — despite receiving cars that frequently lag behind in global technology standards. As the United States contends with new tariffs imposed under former President Donald Trump, auto industry executives and analysts are revisiting Brazil’s experience as a cautionary example. Once the world’s fourth-largest auto market, Brazil now illustrates the long-term costs of protectionist policies. Philipp Schiemer, former head of Mercedes-Benz in Brazil and Latin America, experienced these challenges firsthand. After opening a luxury car plant in São Paulo, the company was forced to close it by 2020. “Brazil is a good case study in assessing the effects of protectionism,” said Schiemer. “Tariffs often generate inefficiencies. Protected markets tend to fall behind.”

The turning point came in 2011, when a strong economy and a rising currency prompted a surge in vehicle imports, alarming the then-governing Workers’ Party, which has close ties to automotive labor unions. In response, then-President Dilma Rousseff implemented a 30-percentage-point tax increase on imported vehicles, halved taxes on domestically produced cars, and pressured automakers to freeze job cuts. These measures, along with local content requirements introduced in 2012, marked the most protectionist shift in Brazil’s auto sector since its liberalization in the 1990s. While imports fell and local production briefly surged — reaching a record 3.71 million vehicles in 2013 — many global manufacturers were faced with a difficult choice: exit the market or invest in local manufacturing. Several, including Mercedes-Benz, opted to build new factories in Brazil. However, most struggled to replicate the cost-efficiency of their global supply chains.

As inflation accelerated and economic growth slowed, domestic demand weakened. With limited international competitiveness, Brazilian plants were unable to pivot to exports. Mercedes-Benz ultimately closed its only car plant in the country just four years after opening it. In 2021, Ford also ceased local production, ending a 100-year presence in Brazil. As of last year, Brazil’s auto production stood at 2.55 million vehicles — down by a third from its 2013 peak. Employment in the sector has declined by roughly 20% over the same period.

Brazil’s automotive experience underscores the long-term risks of shielding domestic industries from global competition. Rather than fostering innovation and sustainable growth, excessive protectionism can lead to inefficiencies, reduced competitiveness, and lasting structural decline (Source: Reuters).

MORE TAXES ON INTERNET SERVICE PROVIDERS IN BRAZIL

The National Telecommunications Agency (Anatel) has confirmed the revocation of Norma 004/95, which since 1995 had classified internet services as value-added services (Serviços de Valor Adicionado – SVA). This decision, now definitive, will come into effect on January 1, 2027, as part of a broader regulatory simplification agenda.

The change removes the legal distinction between internet services and traditional telecommunications services. As a result, internet services may become subject to the same regulatory and tax obligations as telecom services—particularly the state-level ICMS tax. This potential shift has prompted concern among small internet service providers (ISPs) and other stakeholders, who fear increased compliance costs and heavier tax burdens.

Although the measure is confirmed, the delayed implementation provides a window for adaptation and for any legal or political developments that may affect its rollout. Anatel has encouraged stakeholders to proactively engage with regulators and policymakers to assess the implications of the reform and contribute to the regulatory debate during the transition period.

ROADSHOW: BPC PARTNERS WILL BE IN PANAMA CITY AND SAO FRANCISCO / PALO ALTO END OF AUGUST

On 22^nd of August 2025, BPC Partners will be in PANAMA CITY to meet potential clients and investors into the Brazilian market. And on 25^th of August 2025, BPC Partners will be in SAO FRANCISCO / PALO ALTO. Take this opportunity to book a meeting with one senior partner of BPC Partners.