Impacts of the tax reform proposal in the technology sector

​Bill No. 3,887/2020 aims to create the Social Contribution on Transactions with Goods and Services (Contribuição Social sobre Operações com Bens e Serviços – CBS). The CBS will have a single 12% rate, and will only be noncumulative.

Currently, in order to foster the development of national technology, according to article 10, item XXV of Law No. 10,833/2003,  “the revenues of computer service companies, resulting from software development activities and their licensing or assignment of rights of use, as well as analysis, programming, installation, configuration, advice, consultancy, technical support and maintenance, or software update” are subject to the cumulative regime of PIS/COFINS, which ensures a tax rate of 3.65%.

In this sense, with the creation of CBS, the technology sector will go from a tax rate of 3.65% to 12%. As a large part of the technology input is its workforce, developers, programmers, etc., the noncumulativeness will not ensure a balanced tax burden to other sectors.

Another point that draws attention to the proposal is the tax responsibility of the digital platforms for the collection of CBS in cases when the seller does not issue an electronic tax document. It is worth noting that the liability of platforms for third party taxes presents serious constitutional and legal issues. Even more when considering that, in cases of importing goods, digital platforms domiciled abroad will be jointly responsible for the collection of CBS.

Interestingly, the project limited the liability above by establishing a definition for digital platforms. The processing of payments solely, for example, will not lead to the characterization of a platform, demonstrating that depending on the structure of the activity a gateway may not be characterized as a platform for the purpose of CBS collection.

Finally, it is worth noting that CBS focuses on the import of goods and services from abroad, but the Bill defines that “the concept of services also includes the assignment and licensing of rights, including intangibles”. Clearly, this provision directly affects constitutional discussions on the concept of service.

With so many novelties proposed in the Brazilian tax system, the industry is invited to revisit the potential impact of these changes on its business models, in order to prepare for the possible new tax model to be followed.