• Tax Planning
    Investment or Expense in Brazilian Economic Crisis

    By Gabriel Quintanilha


    Brazil is one of the countries with the highest tax burden in the world. In a recent study, the Organization for Economic Cooperation and Development – OECD, concluded that the Brazilian tax burden is the highest in Latin America. In 2012, according to the OECD, Brazil was the 15th country with the largest tax burden in the world.

    Brazilian taxes fall more heavily on the contributions created to finance social security and less on equity and income, which demonstrates an urgent need for pension reform.

    In a crisis scenario, there is a major conflict of interests because the state tends to seek ways to increase government revenue while the taxpayer, pressured by the drop in demand, must find ways to collect less taxes, maintaining its profit margins and competitiveness.

    Thus, there are legal instruments which aims to protect the state and avoid unfair practices. In Brazil, simulated behaviors can be disregarded by the tax authorities, who can charge it with a big penalty. Abusive or simulated practice is known in the Brazilian tax law as tax circumvention. Moreover, there are some conducts typified as a crime, which is the case of tax evasion, for example. In this case, the individual practices one taxable event and omits the practice of the taxman, characterizing the crime. There is a thin line, but circumvention is a civil offense, not characterizing the criminal practice, known as avoidance.

    On the other hand, tax planning is legal. It is an instrument used by taxpayers in many countries to reduce the tax burden, increasing competitiveness and business results.

    In Brazil, there is no doubt that the company and the individual itself should seek a more fiscal management, reducing taxes or even driving then away.

    There are options in the legislation to be examined on an annual basis, as is the case of company's taxation by income tax. What would be the best system? Real or presumed profit? The National Simple (a simplified tax system for small companies) would always be a good option?

    Brazil's economic crisis is pressing the company's' profit margins. This is the time to review processes, reorganizing societies modernize tax management and implement a tax planning.

    There are several legal chances of reducing the tax burden, either through lawsuits or internal decisions, in business management.

    Without this, the modernization of internal processes and adopting tax planning, the company may not survive the crisis in the country.

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Gabriel Quintanilha

Gabriel Quintanilha is based in Rio de Janeiro. Gabriel has been an attorney at law since 2006. He is also Professor of Tax Law at Fundação Getulio Vargas – FGV and IBMEC. Author of books and articles published in Brazil.

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