A recent report by the Thomson Reuters Institute illustrates how corporate tax departments are preparing to mitigate the obstacles brought by Brazil’s recent tax reform plan and ensure a seamless transition for their organizations
The tax system in Brazil has been complex and challenging for businesses and individuals alike. So, to address this issue, the Brazilian government has proposed and recently approved a tax reform plan that is expected to simplify and improve the country’s tax environment.
The novel tax reform in Brazil has been designed to resolve certain matters such as high tax rates, complex tax compliance, and conflicting taxes at different levels of government. The proposed changes in the system will seek to improve the efficiency of tax collection, reduce disputes, and create a more equitable system for both businesses and individuals. As the reform will affect various sectors of the economy, it is crucial to gauge the perspectives of tax professionals in Brazil regarding these alterations.
A new report by the Thomson Reuters Institute, Brazil Tax Reform: Insights, challenges and opportunities for corporate tax professionals, analyzes corporate tax professionals’ opinions about this transformative change. The report is based on a survey that was conducted to look at Brazilian corporate tax professionals’ perspectives, including their awareness and readiness for the tax reform, their satisfaction levels, and any ongoing actions to assess the reform’s impact in their businesses. Additionally, the report examines the level of importance of tax management systems in the transition as well as professionals’ expectations around their corporations’ investment plans and budget support.
Overall, the report provides a comprehensive insight of how corporate tax departments in Brazil may be preparing for and coping with the imminent changes — both positive and negative — that will be brought by the tax reform.
Key findings
By the time the survey was held (April-May 2024), respondents had indicated that their organizations hadn’t started to take actions yet regarding the tax reform and were still gathering information and evaluating the reform’s impact on their activities. Still, the effect of the reform will likely be high in corporate tax departments, survey results suggest.
One of the main objectives of the reform is to substitute current tax structures for a dual Value-Added Tax (VAT) composed of the Goods and Services Tax (IBS) and the Contribution on Goods and Services (CBS). Indeed, survey respondents said that the replacement of old taxes by IBS and CBS would have the greatest impact on their organizations, and they also identified ICMS tax incentives as an important development brought by the reform.
According to the report, some of the changes to the tax system are seen as beneficial, while others are perceived as obstacles. In fact, many corporate professionals said they anticipated more simplified ancillary obligations and reduced tax complexity in their work processes. However, the greatest difficulties identified by respondents were an increase in tax burdens and higher costs associated with adapting to the new rules, including system changes and the necessary learning curve. Another important concern among respondents turned out to be a potential workload increase caused by the transition between the old and new systems.
You can access the Thomson Reuters Institute’s “Brazil Tax Reform: Insights, challenges and opportunities for corporate tax professionals” report here.
Most respondents said they expect their organization to increase investment in talent training over the coming six months, indicating that organizations will probably focus on improving the skills and quality of personnel managing the transition. Yet, while corporate tax departments should definitely consider talent training as a key strategy for the transition, headcount expansion might also be a smart move because organizations’ team size in planning for the transition surfaced as one of the areas with lowest satisfaction among respondents.
Finally, corporate tax departments are considering leveraging technology tools and systems to optimize time and cost in the transition. Professionals highlighted the importance of tax management solutions, emphasizing the need for these tools to be continuously updated with new rules and increasing the pace of automation of their processes. As for financial planning, respondents said that investment in these solutions is projected to be the top spending priority in their departments over the next six months to two years.
Conclusion
This newly published report explores the impact that the new rules in the tax system in Brazil will have on corporate tax departments. According to many tax industry professionals, some strategies that these tax departments intend to carry out for a successful transition include staying informed of new regulation developments, leveraging technology and automation, and adjusting investment in areas like talent training and tax management systems, among others.
By designing a structured plan of action, corporate tax professionals should be able to adapt to Brazil’s new tax system and secure compliance and efficiency.
