The Brazilian Tax Reform represents one of the most significant overhauls of the fiscal system in recent decades, with direct effects on the operational dynamics of corporate groups.
Among the aspects that demand in-depth analysis is the treatment of cost sharing agreements, instruments used to allocate common expenses among companies within the same economic group, without a profit-making purpose.
The new tax framework, marked by the creation of the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS), may substantially redefine the tax authorities’ interpretation of such arrangements, increasing the risk of tax assessments and requiring immediate contractual and strategic revisions.
1. New Tax Structure and the Risk of Cumulativity: The introduction of CBS and IBS raises uncertainties regarding their applicability to cost sharing agreements. Transactions previously considered non-taxable may now be reclassified as taxable services, thereby becoming subject to taxation and increasing operational costs. The lack of clear guidance on the non-cumulative nature of these taxes in such cases may result in tax cascading, unduly burdening the companies involved.
2. Prohibition on Credit Appropriation under CBS and IBS: Given that cost sharing arrangements typically do not generate taxable outputs or entitle companies to input tax credits, the application of the new system may prevent the recovery of tax credits. This limitation tends to produce cumulative tax effects, especially in cases where companies merely share administrative or operational costs with no intent to generate profit.
3. Need for Contractual and Documentary Reassessment: The reform will require a thorough review of cost sharing agreements, with a focus on strengthening their legal and technical aspects. It will be essential to clearly demonstrate the absence of markup, consideration, or any element that may characterize the arrangement as a taxable service. Supporting documentation, such as allocation spreadsheets and meeting minutes, will gain greater importance as evidence of compliance.
4. Risk of Tax Assessments and the Importance of Case Law: The absence of specific regulation on this matter may lead to divergent interpretations by tax authorities. During the transition and consolidation phases of the new system, an increase in administrative and judicial disputes is foreseeable. In this context, close monitoring of both judicial and administrative precedents will be essential to guide corporate conduct and mitigate the risk of assessments based on controversial interpretations.
Although the Tax Reform still depends on complementary legislation, the risks it poses to cost sharing agreements already require immediate attention from companies. The review of existing contracts, the reinforcement of supporting documentation, and the continuous monitoring of the tax authorities’ positions are essential measures to ensure the compliance and sustainability of such operations.
