Fonte: ITR 

The report is solid and balanced as it correctly underscores the ambitious institutional redesign that Brazil has undertaken in adopting a dual VAT model, experts tell ITR

A recent OECD paper which argues Brazil is set to become a “pioneer” with a unique VAT reform has received praise from local experts, though one argues it could be more direct about the execution risks involved.

The working paper from the OECD Economics Department, titled ‘The reform of Brazil’s consumption tax system,’ was published on November 10.

Its authors are policy experts Jens Mathias Arnold, Piet Battiau, Falilou Fall and Karoline Spies.

OECD working papers don’t represent the OECD’s official views, but rather those of the authors. They are intended to stimulate discussion on issues on which the OECD works.

Implementation of Brazil’s new VAT system is set to begin in 2026. This system is set to replace the five main consumption taxes that are currently applied at federal and sub-federal levels in Brazil.

The new system, to be governed by common uniform rules, will be a dual VAT system comprising federal VAT (Contribuição sobre Bens e Serviços or CBS) and a state and municipal VAT (Imposto sobre Bens e Serviços or IBS).

Canadian and Indian dual VAT models have been a source of inspiration for the Brazilian model, but the latter has unique and innovative features, the OECD paper claimed.

Creating consistency

Gabriel Caldiron Rezende, a partner in the indirect tax team at law firm Machado Associados in São Paulo, tells ITR that a key point for the success of the tax reform, as highlighted by the report, is uniformity and consistency of administrative guidance.

The current independence of taxing entities of different levels – federal, state and municipal – tends to lead to controversies because the same fact may be subject to different interpretations, he notes.

“Thus, it welcomed that the OECD report points out as critical for the success of the reform the need for consistency in the interpretation of the CBS and IBS rules, avoiding the current divergencies and insecurities,” he says.

Even though CBS and IBS are governed by different entities, it is crucial to treat them as one single tax for rules and levying purposes, according to Rezende.

The old paradigm of a broad independence of taxing entities when interpreting and applying taxes has proven unsuccessful and uncooperative, he argues.

“Also, it is important that audit procedures be standardised, avoiding conflicting interpretations on practical application of the law,” Rezende says.

“However, more than that, it is important that tax authorities take a cooperative approach towards taxpayers, aiming at compliance and [standardisation] rather than assessing and imposing penalties.”

Allan Fallet, a tax partner at Duarte Garcia, Serra Netto e Terra in São Paulo, tells ITR the OECD’s working paper rightly underscores the ambitious institutional redesign that Brazil has undertaken in adopting a dual VAT model.

The analysis acknowledges that Brazil operates within a federation that is broader and more heterogeneous than international benchmarks, he says.

From a tax design and accounting perspective, the OECD highlights core features that require close attention from corporate tax leadership, according to Fallet.

This, he argues, includes the broad and uniform tax base, destination-based taxation for domestic and cross-border operations as well as the aligned treatment of imports and exports.

These elements bring Brazil closer to international VAT standards, particularly those observed in Canada and India, Fallet tells ITR.

However, they also reflect the unique characteristics of Brazil’s three-tier federative structure, he argues.

In addition, the report’s warning that mere legal alignment will not ensure neutrality or predictability unless accompanied by a robust operational architecture is a prudent one, according to Fallet.

However, he tells ITR that favoured regimes, special treatments, and sector-specific rules remain sensitive points.

“[The] OECD [paper] notes that, if not strictly managed, these exceptions could create new sources of litigation, undermining the reform’s simplification objectives.

“Taxpayers must therefore closely monitor the forthcoming administrative guidelines and prepare for a governance environment that will evolve materially over the transition period,” he says.

Excellence in execution

While characterised by the OECD paper as a historic achievement, the decisive phase for the tax reform now lies in execution, Fallet tells ITR.

Companies should prioritise a structured roadmap encompassing compliance, systems integration, credit chain recalibration and strategic tax-process redesign, he adds.

“For tax departments, this transition is not simply a compliance exercise but an opportunity to embed technological efficiency, strengthen internal controls, and leverage the dual VAT to enhance competitiveness in a reconfigured indirect tax landscape,” Fallet asserts.

Ana Carolina Fernandes Carpinetti, a partner at law firm Pinheiro Neto Advogados in São Paulo, tells ITR the OECD paper is “solid and balanced”.

However, she argues it could be more direct about the execution risks that will define whether Brazil’s new CBS/IBS system will actually work in practice.

For example, she tells ITR that the report highlights the innovative structure of the IBS Steering Committee but doesn’t really get into the practical challenges ahead.

The IBS Steering Committee is a new independent body composed of state, municipal and federal representatives that will manage and administer the sub-federal IBS.

Carpinetti says: “How will it make decisions? What will its budget and procurement rules look like? How will it handle cybersecurity and staffing?

“These details matter for a tax that needs to run smoothly across the entire country.”

On the topic of a cashback system to compensate low-income households for the higher cost of VAT as a share of their income, the analysis is positive but doesn’t touch on the operational side, Carpinetti adds.

Running targeted refunds at national scale requires strong registries, broad financial inclusion, good data matching and solid anti-fraud systems, she notes.

“Brazil has good digital infrastructure, but the paper doesn’t propose benchmarks or a timeline for expanding cashback beyond electricity and gas,” she says.

Furthermore, litigation and audit coordination – which are always crucial issues in Brazil – are mentioned only briefly, according to Carpinetti.

She argues that the paper could be clearer on how to avoid conflicting interpretations between administrations, how administrative courts under the committee will work, and how binding guidance will be issued.

In addition, Carpinetti tells ITR that, while comparisons with Canada and India are useful, both rely much more on federal administration than Brazil plans to.

“Since Brazil is keeping subnational administration, the parallels only go so far,” she says. The OECD report is right to be “cautiously optimistic”, Carpinetti tells ITR.

“The long transition period, starting with tiny test rates in 2026 and running to 2033, is sensible.

“But until the governance model, IT architecture and dispute resolution framework are fully settled, it is hard to know whether the new VAT will achieve real simplification or risk falling short in the implementation phase,” she concludes.