Brazil is undergoing a structural tax reform. The first bill, regarding the Income Tax, was approved by the lower House of Representatives and is on its way to the Senate. If confirmed, it will profoundly impact the daily lives of companies in Brazil.
We have 4 tips to better face possible changes:
1. Make scenarios with different taxation. The company must closely monitor the consequences of each change, and specifically visualize each impact to its business. It is important to project future discussions in court, and take them into account. It is already noted, for example, that there will be a discussion in court about the new dividend rules which, in some cases, would have a cumulative impact.
2. Anticipate changes. Income tax legislation may determine structural corporate changes. The return of capital to a partner/share holder, for example, must be made at market value, with the payment of capital gain tax. There is still time this year to anticipate before the new rule comes into effect.
3. Create action plans. If it is not possible to anticipate, for financial or business reasons, plan in a concrete way, according to the scenarios. Plan the restructuring of the business and operation as a whole. Schedule the company’s future movements, to be implemented according to each emergency.
4. Actively participate in the reform process. It is much easier to modify a bill than to later fight against such a law in the Judiciary. It is extremely important for civil society, through associations and their representatives, to be attentive and improve the text of the tax reform at this time.
Evidently some changes will not take place. Therefore, each movement must be calculated to be performed preventively or as a hedge, or even left aside, without being implemented. This is the safe option to navigate this process.
The other option, of course, is to passively wait and hope that the reform does not pass in the worst possible way.
