PEC No. 45/2019 (TAX REFORM) IS APPROVED IN THE CHAMBER OF DEPUTIES

The Chamber of Deputies approved, in the early hours of July 7, the wording of PEC (Constitutional Amendment Bill) No. 45/2019, also known as the Tax Reform, introducing relevant changes in taxes levied on consumption.

Now, PEC will be examined by the Federal Senate, and its passing will depend on votes that account for the constitutional majority of senators (49 senators). If approved without changes, the PEC will be enacted in the form of a Constitutional Amendment.

If there are relevant changes in its content, the bill will return to the Chamber of Deputies for consideration of such changes.

                                                                          Main Changes

The main change set forth in the Tax Reform, with a view to simplifying the Brazilian Tax System, is the extinction of five (5) taxes – PIS, COFINS, IPI, ICMS, and ISS – and the creation of a "Value Added Tax" – VAT, to be levied on operations with tangible or intangible assets, including rights, or with services.

This VAT will be dual, that is, divided into two taxes: (i) Contribution on Goods and Services – CBS, under the jurisdiction of the Federal Government, and (ii) Tax on Goods and Services – IBS, under the jurisdiction of the States, Cities, and the Federal District.

 

Replacing the thousands of currently existing rules on the taxes abolished (PIS, COFINS, IPI, ICMS, and ISS), this VAT will be managed only by the Federal Government and by a new agency created for this purpose, the Federative Board of Tax on Goods and Services, in which all States, Cities, and the Federal District will participate.

There is also provision for the creation of a Selective Tax, which will be levied on the production, marketing or import of goods and services harmful to health or the environment.

Other relevant changes were made in relation to ITCMD:

• Inheritances and donations received abroad. Providing for the possibility of requiring ITCMD as concerns heritages or gifts causa mortis made abroad, regardless of the issuance of Supplementary Law in this regard;
• Progressivity. ITCMD will be progressive, as a result of the amount of heritage or gift; 
• Jurisdiction for taxes on personal property, securities, and credits. The taxation of such assets becomes the responsibility of the State where the decedent or donor was domiciled;
• No levy on donations to non-profit institutions. The scope of non-incidence of ITCMD on heritages and gifts made to non-profit institutions is increased.

•       Differentiated rates. Providing for the possibility of differentiated tax rates being established depending on the type, price, use, and environmental impact of vehicles; 
•       Levy on land, water, and air motor vehicles. Providing for the levy of IPVA on water and air vehicles (which, until then, were not subject to IPVA requirement), except for certain cases (vehicles used in agricultural and transport activities).

5. Changes relating to IPTU

The approved wording also introduced changes regarding IPTU  (Urban Real Estate Tax), allowing the Executive Branch to update the tax base, pursuant to criteria to be provided for in municipal ordinance.

6.Delegation for Supplementary Laws

Like any change of such scope, there are still many issues to be further developed and gaps to be filled.

In this regard, the approved wording delegates a series of discussions necessary for the effectiveness of its provisions to Supplementary Laws, which should be issued to substantiate the changes introduced by the PEC.

7.Next steps in tax reform

Lastly, the approved wording also establishes that, in addition to the development of the various matters through Supplementary Laws, the Executive Branch will forward, within one hundred and eighty (180) days from the PEC's passing, a bill to reform income taxation.

Our lawyers are available for questions or clarifications.

Dowload the complete file here: TRD_01_14762_Reforma Tributária_Versão Inglês.pdf