Tax | Brazilian Tax Reform on M&A: 4 Points of Attention

In recent months, Tax Reform has become one of the most relevant topics for the business environment in Brazil, especially in the mergers and acquisitions (M&A) market.

The proposed changes aim to simplify the complex national tax structure, eliminating distortions and bringing greater transparency to the system. However, the implementation of these changes may generate important repercussions on the strategic decisions of companies and investors, directly affecting the dynamics of M&A transactions.

Amid this scenario of transformation, we highlight the main impacts that Tax Reform should bring to the mergers and acquisitions market:

1. Tax Simplification and Reduction of Uncertainties: The unification of taxes such as PIS, Cofins, IPI, ICMS and ISS into two value-added taxes (Dual VAT) promises to simplify tax rules and reduce legal uncertainty. For investors, this means less risk of unexpected tax liabilities and greater predictability in asset valuation, making transactions more attractive.

With simpler and more agile due diligence processes, the time and cost involved in negotiations tend to decrease, favoring an increase in the volume of transactions.

2. Valuation of Companies with Efficient Tax Structures: With the standardization of the tax system, many companies will no longer benefit from differentiated tax regimes, which may affect their competitiveness. Companies that currently operate with a more efficient tax structure will be able to stand out in the new scenario.

In M&A transactions, it will be crucial to reassess the valuation of target companies, especially in sectors that have historically benefited from special regimes, such as technology and services.

3. Increased Tax Burden in Some Sectors: Certain segments will face an increase in the tax burden, which may impact on their profit margins and, consequently, their attractiveness to investors. Just like the construction sector, the services sector, which currently operates with a cumulative model and a lower effective tax rate, could be one of the most affected by the transition to a Dual VAT regime, resulting in a higher tax burden.

Companies in these sectors may need to renegotiate the terms of transactions already underway and adjust their financial projections. In addition, there will be a greater need for operational restructuring to preserve profitability margins.

4. Incentive to Formalization and Improved Transparency: With a simpler tax system that is less subject to ambiguous interpretations, an increase in the formalization of small and medium-sized companies is expected. This should expand the base of companies available for M&A and reduce tax avoidance practices, benefiting investors. The new scenario may stimulate transactions in more informal sectors of the economy, in addition to expanding the range of opportunities in the startup and scale-up segment.

5. Corporate Restructuring and Tax Planning: With the new rules, many companies will need to review their corporate structure, especially those that operate with subsidiaries or holding companies in different states and countries. The elimination of regional tax incentives and the standardization of tax rates will require a reassessment of production chains and operating models to ensure long-term tax efficiency. Tax planning will play an even more strategic role in the M&A process.

Although the Tax Reform brings considerable challenges to several sectors, it also opens up new opportunities for investors who know how to anticipate the changes. Companies that quickly adapt to the new rules will be in a competitive advantage position, being able to capture value in M&A transactions in a more transparent and predictable regulatory environment.

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