Investments in R&D made it possible for the country to position itself strategically on the global stage, increasing its participation in the OECD
We assume that if you are within a company in Brazil that develops and/or invests in innovation, you have certainly heard of the Lei do Bem.
The Federal Government, through public policies, uses mechanisms such as tax incentives to encourage technological development, through support instruments that seek to increase investments in research, development and innovation (RD&I) and impacting the entire chain, including private companies .
Law No. 11,196/2005 (Lei do Bem) is notoriously popular among incentives, as it is multisectoral and reached its majority this year, 18 years encouraging companies that carry out RD&I activities in Brazil.
As one of the first attractions of this incentive, we can highlight the possibility of reinvesting the amounts deducted in RD&I, increasing market competitiveness and continuous improvement. But like all tax incentives, this Law is the subject of many doubts, many companies even do not know or think that this benefit is not legally compatible with their reality. Recently, the Ministry of Science, Technology and Innovation (MCTI) published a study of the results of the Lei do Bem in the period from 2014 to 2021, and the data show that since the creation of the Law, in 2005, there has been a significant increase in the number of projects beneficiaries and in the volume of investments in RD&I by Brazilian companies.
In 2014, 1,206 companies were registered, while in 2021 that number rose to 3,012 beneficiaries. This increase is an indication that more companies are seeking resources to invest in RD&I, which is positive for the country's innovation ecosystem.
In addition, the total value of investments in RD&I has also grown, in 2021, this value reached R$ 27.9 billion invested, representing an increase of more than 200% compared to 2014, which presented R$9.25 billion. This data suggests that companies are increasingly willing to invest in innovation, and that the Lei do Bem has been an effective tool to encourage these investments. Regarding the data presented for tax breaks, in 2021 it totaled R$5.86 billion, and in 2014 R$1.92 billion.
We observed during these years that the most mature companies in relation to the management of resources for innovation and that have used the benefits of the Lei do Bem since the beginning of the mechanism, had an evolution from the point of view of improvement of controls, improvement in the organization and sharing of information between areas, directly impacting better project management, in addition to reducing taxes payable.
The Lei do Bem creates a favorable tax environment for private investment in RD&I, strengthens scientific development, cooperation between companies and universities and the country's competitiveness.
Despite this, although the rates of use of the Good Law by companies have increased, the Minister of Science, Technology and Innovation, Luciana Santos, proposes that we are far from a satisfactory number of companies using the incentive. The minister even defends the updating of the text of the Law, to try to expand the capillarity of use by companies that are in a situation of tax loss, for example. The idea is to take advantage of the successful implementation of this law to improve the premises to serve an even greater number of companies that have practical innovation in their activities.
What we observe is that larger companies, which have constant activities and maintain well-pronounced innovation practices, already use this tax incentive on a regular basis, but in Brazil there is still a vast number of medium-sized companies, where innovation activities are not so easily tracked or driven that they could exploit this benefit, thereby becoming more robust and competitive.
Tax Reform in Brazil
The tax reform is a proposal to change the laws that define the taxes that must be paid by taxpayers, as well as the way they are collected throughout the country.
Much is said about Tax Reform in Brazil, it is a recurring subject and we know that our National Tax System is complex and difficult to understand. The Reform has the “mission” of simplifying the National Tax System, as well as modernizing tax collection in line with good international practices in order to favor the national productive environment.
Regarding the discussion of consumption taxation, two Constitutional Amendment Proposals (PECs) are being processed: PEC n.º 45/2019, which is being discussed in the Chamber of Deputies and PEC n.º 110/2019, in the Federal Senate .
In general, both PEC No. 45/2019 and PEC No. 110/2019 aim to extinguish taxes: PIS, COFINS and IPI (federal); ICMS (state) and ISS (municipal); and the creation of others: The tax/contribution on Goods and Services in the form of value added taxes (VAT) and the Selective Tax (the one to discourage the consumption of products that are harmful to health and the environment).
How can the Tax Reform impact the tax incentives of the Lei do Bem?
The most expressive benefit of the Lei do Bem, the additional exclusion of expenses, allows the company to deduct (once again) from Net Income, from 60% to 100% of expenditures with PD&I, causing the company to stop paying 34% (rate of IRPJ 25% and CSLL 9%) on this exclusion. The Lei do Bem tax benefit can range from 20.4% to 34% of RD&I expenditures.
In the current discussion of the Tax Reform, there will be no direct impacts on the main tax incentives of the Lei do Bem, that is, the additional exclusion of expenditures with RD&I on the basis of IRPJ and CSLL. However, the tax benefit from the IPI 50% reduction on machinery and equipment dedicated to R&D will be impacted due to the extinction of this tax, which is a benefit used on a smaller scale by the beneficiary companies. It is worth mentioning that in an eventual Reform on the taxation of income and payroll, then we will be facing a more expressive impact for the Lei do Bem.
Thus, if there is a reduction in the effective IRPJ and CSLL rates (from 34% to 26%, for example), the return on the Lei do Bem may decrease significantly.
In order to minimize impacts on this important tax benefit, due to a Tax Reform on income, a new wording was suggested for article 19 of the Lei do Bem in Bill No. Lei do Bem, bringing numerous improvements, among them the permission to use the tax loss in later years.
The proposal of PL 4.944/20, aims to transform the tax benefit of the additional exclusion into a direct deduction on the tax payable and align with the best international practices, as it is currently in Portugal (tax deduction payable from 32, 5% on expenditure incurred on R&D projects), Spain (deduction from 25%), United States (20% deduction), Chile (35% deduction) and Colombia (up to 35% deduction).
For Carina Leão, Director of Institutional Relations and Taxes, the Tax Reform is really necessary to favor the national productive environment. “It is very important that we follow the discussions, seeking to avoid that in the end there is no increase in the tax burden and that the best possible Reform is finally approved”, he emphasizes.
Attachment: International comparison of RD&I tax benefits and accountability information.
Sources consulted:
https://www.gov.br/fazenda/pt-br/acesso-a-informacao/acoes-e-programas/reforma-tributaria
https://www.gov.br/mcti/pt-br/acompanhe-o-mcti/lei-do-bem/noticias/informacoes-estatisticas
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