CBS: changes for companies with the new form of taxation on consumption

By Luiz Flávio Cordeiro

The federal government sent the first part of the tax reform to Congress on July 21, proposing changes in consumer taxation. The proposed law creates the Social Contribution on Operations with Goods and Services (CBS), replacing PIS/Pasep and Cofins.

CBS is a Value Added Tax (VAT) with a single rate of 12% (with a few exceptions), which puts an end to tax differentiations between sectors and to several special systems. The government's main arguments to ease the new system are the simplification and transparency brought by the model.

In fact, the complexity of the current tax legislation should be overcome to increase the dynamism of the way of doing business in Brazil, contributing to the performance of Brazilian companies in the domestic field, their competitiveness overseas and attracting investments from foreign groups.

In addition, standardizing the payment methods would also be a way to increase legal safety, since the tax tangle and the calculation and compensation formulas generate questions that constantly reach the judicial authorities.

The government "divided" the tax reform was into stages. Thus, discussions about other consumption taxes, such as IPI, ICMS and ISS, were left for other moments. This strategy was adopted to try to expedite the process in Congress and soon to get the approval of CBS.

The CBS model

The proposed CBS model is in line with what is practiced in other countries, which becomes a facilitating and attractive feature to incoming foreign investments. This equalizes the Brazilian system with international tax rules and procedures.

Currently, PIS/Cofins is paid as follows:

Companies that adopt the Presumed Profit system:

• The payment of PIS/Cofins is cumulative (by stages of production);
• 3.65% rate (3% of Cofins + 0.65% of PIS);
• It does not generate tax credits.

Companies that adopt the Real Profit system:

• The PIS/Cofins payment is non-cumulative;
• 9.25% rate (7.6% of Cofins + 1.65% of PIS);
• Some types of purchases generate tax credits (if directly related to the productive activity).

In other words, PIS/Cofins has a complex calculation base, in addition to making this differentiation by tax regimes.

With CBS:

• The cumulativity ends;
• Single rate of 12%;
• On revenue from companies' billing, that is, on operations with goods and services in a broad sense.

Tax incentives for PIS/Cofins and special regimes, such as Reidi, Reporto, Repes, Recob, PPB, among others, would be extinguished.

With the current PIS/Cofins system, a lot of time is spent establishing the the crediting of operations. The simplification brought by CBS, by paying the tax, automatically allows the taxpayer to take credit.

One of the items that has raised disapproval to CBS is the 12% tax rate, which would increase the burden for the taxpayer. On the other hand, charging " externally", considering the revenue as the basis for calculation and putting an end to the accumulation are some points seen as favorable, either by simplifying pricing or by giving more legal security to corporate lawsuits.

The changes can have a positive or negative influence, depending on the company's operating area. However, establishing whether the change favors or not the business is something that cannot be reduced to such an immediate analysis.

For example, the entrepreneur who currently pays a 3.65% rate: just considering that this begins to pay 12%, it would represent a significant increase. However, it must be considered that this taxpayer, who today does not receive credit from his service providers, could now receive it.

Exceptions and specific rules

• The government established specific rules and a lower tax rate, of 5.8%, for financial and similar entities.
• CBS will not focus on companies that are part of Simples Nacional, basic food products, charities, temples of any cult, political parties, cooperatives and condominiums.
• In addition, there will be specific rules for single-phase incidence on some products.
• Operations involving the Manaus Free Trade Zone and Free Trade Areas were held.

Legislative procedures

The unification of PIS/Cofins for creation of the new contribution does not require changes in the Constitution, since these are federal taxes. If it involved state-level taxes, for example, it would be necessary to proceed by means of a Proposed Constitutional Amendment (PEC), which becomes slower.

In the political arena, the government has been trying to speed up the process. The executive power has even requested that the proposed law receive urgent treatment. As a result, the House has up to 45 days (from July 21) to vote on the issue and the Senate has another 45 days to examine it.

As there are two other proposals in course in the National Congress, in addition to this text proposed by CBS (PL 3,887), it is necessary to follow the progress of the discussion on reform in the legislative area.

The PEC 45, which came from the Chamber of Deputies, and the PEC 110, proposed by the Senate, are also on the table. The three projects have their differences, but they have as a common element a single VAT-type contribution for tax simplification.

Expert guidance to tune in to the changes

Changing tax environments of this nature affect businesses, which need to reconsider medium- and long-term planning to adapt to the new guidelines.

It is important companies rely on guidance concerning the current patterns and the movements and consequences of a possible transition, to keep an efficient tax management.

Supported by Domingues e Pinho Contadores, the client feels confident to adjust the route, look for new paths and make more accurate and effective decisions for their business.