The complex relationship between the tax matrix and the IT sector

04/06/2019

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By Dr. Manoel Antônio dos Santos, legal director of ABES

 

One such afternoon, at the ABES headquarters, while we were talking about pleasantries and savoring coffee and cake, I heard a symptomatic phrase from a businessman from the IT sector who was among us: “Manoel, I'm impressed! All my friends in the IT sector are 'tangled up' and their personal assets are at risk, due to tax disputes involving their companies!”, said the businessman.

However, these conflicts are not a privilege of our sector. The chemical-pharmaceutical sector, agribusiness, the financial market, mining companies, all have their tax ghosts to manage. Such an environment is fertile ground for law firms and the Big Four, the nomenclature used to refer to the four largest accounting firms specializing in auditing and consulting in the world (EY, PwC, Deloitte and KPMG).

I provide legal advice to another software distribution company, founded more than thirty years ago, which has no delay in the payment of taxes and social security contributions. The profit calculated in 2018 was greater than 60% of shareholders' equity. At the request of an investor interested in acquiring it, the company has just gone through a due diligence process, a service entrusted to one of those auditing and consulting companies that operate worldwide.

The picture presented in the final Tax Audit report and the amounts of risk estimated there by the accounting firm were desperate. According to the audit, if the estimated tax risk is confirmed, the investor would consume the 13-year annual profit to recover from losses. It is likely that the auditors overestimated the risks encountered. However, it is a fact that the auditing company's report contained inadmissible errors for this type of work.

These failures must be credited mainly to difficulties in understanding the complexity of the tax matrix supported by the IT sector. Even companies specializing in auditing and accounting/tax consulting do not know in detail the modalities, calculation bases and method of calculating the taxes paid on the revenues of these companies.

To mitigate these risks (and the resulting costs) entrepreneurs, particularly those in the IT sector, channeled their hopes into a possible tax reform and, finally, the National Congress has moved in that direction.

However, it seems, once again, expectations will fade away. The project defended by Deputy Luiz Carlos Hauly barely goes beyond the barrier of a simple Charter of Principles. The proposed Constitutional Amendment n. 45 (PEC-45), headed by Deputy Baleia Rossi (Luiz Felipe Baleia Tenuto Rossi) and others, proposes a complex system in itself and adds a new article to the Constitution, 152-A, proposing that:

1. Complementary law will institute a tax on goods and services, which will be uniform throughout the national territory, with the Union, the States, the Federal District and the Municipalities being responsible for exercising their competence exclusively by changing their rates;
2. The tax will be levied on goods; about services; about the intangibles; on the assignment of rights; on the licensing of rights; and even about the leasing of goods; on imports of goods, tangible and intangible, services and rights;
3. It will be non-cumulative, offsetting the tax due in each operation with that incident in the previous stages;
4. There will be a uniform rate for all goods, tangible and intangible, services and rights, which may vary between States, the Federal District and Municipalities;
5. The tax rate applicable to each operation will be formed by the sum of the rates set by the Union, by the States or Federal District and by the Municipalities;
6. In interstate and intercity operations, the rate defined by the State, DF or Municipality of destination will apply and the tax will belong to the State, or DF or Municipality of destination;
7. Debits and credits will be registered by establishment and the tax will be calculated and paid centrally. The tax revenue will be distributed among the Union, the States, the DF and the Municipalities in proportion to the net balance between tax debits and credits attributable to each entity.

A quick reading of the proposal summarized above reveals that, in addition to instituting a tax that will have a very high rate (percentage sufficient to cover the taxes that will be collected for the Union, for the States and for the Municipalities), the new tax will reach activities that today are outside the tax sphere.

In addition, the PEC suggests that a new item III be included in article 154 of the Federal Constitution, authorizing the creation of new selective taxes, with extrafiscal purposes, aimed at discouraging the consumption of certain goods, services or rights. Given this scenario, we understand that, even if PEC 45/2019 is approved, the current tax conflicts will disappear only to make room for other discussions.

 

 

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