Haddad wins MP for taxation of multinationals – 05/10/2023 – Market

In the midst of the political articulation difficulties of the government of Luiz Inácio Lula da Silva (PT), Minister Fernando Haddad (Finance) won a victory in the Federal Senate by managing to block last-minute pressure and guarantee the approval of a measure that can guarantee up to BRL 23 billion in resources in 2024.

The senators validated the MP (provisional measure) that changes the rules of the so-called transfer price — a form of taxation of international operations carried out by companies that are part of the same economic group.

Haddad, who is in Japan as a guest for the G7 ministers’ meeting, entered the negotiations directly and, by telephone, managed to convince senators to withdraw their support for changes that would harm the Treasury. The text now goes to presidential sanction.

The proposal, edited at the end of the Jair Bolsonaro (PL) administration, is considered essential by the current administration to close loopholes in the law used by multinationals to pay less taxes in Brazil.

“[A aprovação é] Fundamental! Revenue estimated losses of around R$ 70 billion a year,” Haddad told Sheet, by message. According to him, the Tax Authorities expect the recovery of these values ​​to be gradual. Therefore, the collection in 2024 should be between R$ 17.5 billion and R$ 23 billion.

As income taxation is lower in other countries, multinationals declare the sale of their products to branches abroad at a price close to the cost of production and, from there, complete the sale to the final recipient at the real price.

The final balance is a reduction of the total to be paid in taxes, and there are times when the company even manages to deduct accumulated benefits or losses.

One of the principles of the MP is to extend to transactions carried out within the same group the same rules applied to transactions between unrelated companies —usually governed by market prices. The practice follows the recommendation of the OECD (Organization for Economic Cooperation and Development).

The text also says that the new rules must be observed by companies from January 1, 2024, but it is optional to adhere to them this year.

According to government and congressional interlocutors, business entities and even representatives of federal state-owned companies lobbied hard to try to postpone the implementation of the changes to January 1, 2025.

In the government’s assessment, this change would represent one more year of tax evasion, with a loss of tens of billions of reais for the public coffers.

Another amendment under pressure sought to favor the oil sector, allowing the use of reference prices published by the ANP (National Petroleum Agency) in calculating taxation. As these prices are lower than the actual sale values, this would reduce the tax to be paid (an “export” of the tax that Brazil could collect).

During the early hours of Japan, Haddad intervened to prevent these amendments from taking hold.

Faced with the risk of a setback, he called influential senators to ask for the government’s text to be maintained. One of them was Davi Alcolumbre (União Brasil-AP), author of one of the amendments that postponed the implementation of the rules and that had a chance of approval.

The minister also spoke with the president of Petrobras, Jean Paul Prates, in an attempt to avoid any endorsement of the change that would benefit the company,

Haddad’s successful attack was celebrated in the corridors of the Treasury and is seen by the minister’s allies as a demonstration of the strength of the economic team, at a crucial moment in the negotiation of the fiscal framework and measures to rebalance the public accounts.

Since taking office, Haddad has dedicated himself to establishing a dialogue channel with the top of the National Congress and also with parliamentarians, which has motivated praise for the head of Finance — in contrast to the political articulation conducted by the Palácio do Planalto, which faces criticism of congressmen.

The Amcham (American Chamber of Commerce) celebrated the approval of the project. Without the MP, companies in the United States would run the risk of suffering double taxation, there and in Brazil, since a recent change in that country allows the discount of the tax paid abroad only if the other economy adopts the same principles.

This would be the case for multinationals in the United States which, due to changes in that country’s legislation in January 2022, by making this option could once again count on the deduction, in the tax payable by the parent company, of the tax paid by related companies and collected in Brazil.

“The approval of the new transfer pricing system represents a milestone for Brazil’s competitive international integration. Brazilian regulations are now in line with the best international practices, making the country more attractive as a destination for production and investment”, says Amcham’s CEO, Abrão Neto.