Brazil’s tax policy: Dança Pra Me Provocar

Originally published: June 2024

At face value, Brazil’s international tax policy has often looked contradictory in recent years. They adopted OECD standard transfer pricing (TP), then – as if returning to their previous TP policy – argued in support of OECD TP reform under Pillar 1 (P1) and Amount B through fixed margins and more returns for source countries (https://lnkd.in/ebvZj5Sq). They are on the road to OECD accession, only to argue for UN taking over the reigns as main international tax forum. They pushed the idea of a billionaire tax on the G20 agenda, then came out in favour of UN’s very different wealth tax proposals (https://lnkd.in/eFwXSX8M).

But beneath the surface, there’s a lot more logic to it. Brazil used to stick closely to its own tax policy preferences, even if those differed from how the rest of the world designed their tax system. They slowly transitioned to more international alignment, but then tried to change international standards from within to align better with their preferences. Politics matters too, as the previous administration’s free market approach fitted better with the existing international standards (even though they didn’t favour international cooperation in general).

Now that Brazil has firmly established itself as current G20 leader, a full OECD member and leading advocate for the UN tax role, it is playing a delicate balancing act knowing that many of their preferred policy outcomes are unlikely to be achieved. P1 is now “set to fail” (https://lnkd.in/es8SNyj7), Amount B’s outcome was somewhat disappointing (https://lnkd.in/eweh_h-8), the billionaire tax is very unlikely to get G20 support given the US public disapproval (https://lnkd.in/edGcXYz5) and the UN is lingering a bit on tax (https://lnkd.in/eFwXSX8M).

Although that is all disappointing for Brazil, it was hardly surprising. But as a long game, Brazil has been very successful in getting all these topics on the international agenda. It was always unlikely that their specific proposals would be accepted, but now that these ideas are out there, they’ll likely keep circulating. So therefore, it makes sense to back policy proposals that directionally align with long term goals, even those proposals on details do not add up to a coherent position. This creates a chance some proposal that is a bit like something they want might eventually get accepted.

So, as in this song (https://lnkd.in/eghcmshc), Brazilian policy moves are a dance intended to provoke a reaction. Brazil is not unique in following this tactic, it’s common in politics. But Brazil has recently been more successful than most in setting the agenda. And given where they were coming from, that itself is already impressive.

Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.

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