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New bill proposes the creation of a digital services tax in Brazil

Ricardo Marletti Debatin da Silveira and Rogério Gaspari Coelho of Machado Associados discuss the recent bill aimed at creating a digital service tax for large multinational technology companies in Brazil.

On May 4 2020, congressman João Maia filed Bill No. 2358/2020 with the Chamber of Deputies, aiming at instituting a ‘contribution for the intervention in the economic domain’ named CIDE-Digital. The bill invokes base erosion and profit shifting (BEPS) Action 1, about the challenges of the digital economy, to propose the creation of this digital service tax (DST), assuming that the revenues of big multinational technology companies are undertaxed in Brazil.

While there are other bills aiming at instituting a DST by including that possibility on the Brazilian Federal Constitution, Bill No. 2358/2020 proposes the complete design of this form of tax.

The CIDE-Digital would be levied on the gross revenues of digital services rendered by ‘big technology companies’, which the bill classifies as companies domiciled in Brazil or abroad, whose economic group earns gross revenues higher than BRL 3 billion globally and, cumulatively, BRL 100 million in the country. This rule shows a clear intention of taxing international groups and not pure domestic companies.

The amounts collected will be directed to the National Fund of Scientific and Technological Development (FNDTC).

The tax triggering events would be the earning of gross revenues from the following activities: (i) running advertising in digital platforms for users located in Brazil; (ii) providing a digital platform where users can get in touch and interact, with the objective of selling goods or services, as long as one of them is located in Brazil; and (iii) transmitting data of users located in Brazil and collected during the use of a digital platform or generated by those users. The location of the users in Brazil would be generally checked by their internet protocol (IP) addresses.

The bill establishes progressive rates: 1% for revenues up to BRL 150 million; 3% for revenues exceeding BRL 150 million and up to BRL 300 million; and 5% for revenues above BRL 300 million. Only the proportion of revenues related to the users located in Brazil will be considered for the levy of the CIDE-Digital, in the case of companies that earn revenues in multiple jurisdictions.

As mentioned, the bill defines that companies domiciled abroad will also be taxpayers of the CIDE-Digital, but it does not define how to collect the tax from the companies without physical presence in Brazil. The bill grants general powers to the Federal Revenue Service to manage, audit, collect and establish the ancillary obligations, but it does not address one of the most difficult aspects of the implementation of the DST worldwide: how to properly and efficiently tax foreign tech players?

Although the digital taxation is a worldwide necessity and tendency – which has already been introduced by several OECD members – for the multinational players already established in Brazil, this new tax would add some more spice to the challenging task of doing business in this huge (and highly taxed) market.


Note: USD 1.00 = BRL 5.60 (May 21 2020)


This article was published by International Tax Review in June 2020 (