There are relevant differences between Brazil and US concerning the methodology to calculate sales taxes. While in the United States taxes are calculated over the price of goods or services, in Brazil the price of goods or services already considers the impact of taxes. This circumstance reveals that the tax impact on income in Brazil, in fact, is higher than the legislation’s nominal rate. It happens because the tax amount charged considers the tax value in its own calculation basis. However, this form of calculation is currently under discussion due to changes in Brazilian’s court decisions.
Recently, Brazilian’s Supreme Court held that ICMS (similar to IVA) should be excluded from VAT taxes’ (COFINS and PIS contribution) calculation basis. According to the Supreme Court, taxes do not mean taxpayer’s income, and, therefore, should not compose any tax basis.
This is the case, for example, of VAT taxes itself, as well as tax on services (ISS). The exclusion of VAT taxes from its own bases can generate savings of more than 0.5% of the company’s revenues, while the savings on tax on services can reach up to 0.26% of the price of the service.
WFaria Advogados has a specialized team to advise its clients on the calculation of such taxes, since any attempt to claim for changes in the tax basis must necessarily involve a lawsuit against the State.