Brazil subnational governments sets responsibility to marketplaces pay the VAT (ICMS) on behalf of the vendors

Worldwide the concept of online marketplaces is very similar and can be defined as the approximation of vendors and buyers in a virtual environment, making feasible business between parties that otherwise would not meet offline. The business model can variate per se, but usually the marketplace receives a fee of the sales or charge a monthly fee for displaying the announcing of the retailer.

Although the online marketplaces intermediate sales, those companies are not considered as vendors, but mere facilitators, which leads them to a specific consumption tax in Brazil called Service Tax (ISS) – collected by local governments. Retailers, on the other hand, are submitted to a State tax, known as Brazilian VAT, the ICMS, which levies upon sales of goods. It is important to clarify that VAT in Brazil is regulated and collected by State Government, making it a very complex tax once the rules change from State to State. In some cases, such as sales to end consumers, the VAT is split between two States.

Therefore, in a sale performed through an online marketplace – usually to an end consumer – the tax burden consists in VAT for the retailer due to State Government, and ISS for the marketplace (if the company is remunerated by a fee of the transaction), due to local government. It is supposed to be simple as that.

However, some of the Brazilian States, such as Rio de Janeiro, Bahia, and others, facing problems on collecting VAT upon the sales performed by retailers through marketplaces, issued new legislations stablishing to marketplaces the responsibility to pay the VAT due by the sellers on operation performed through its online platform.

In Rio de Janeiro, for instance, the tax administration is developing a regulation that will force online marketplace to collect VAT on behalf of several companies that are considered as irregular, do not issues the invoice to the end consumer on the State and do not collect VAT to Rio, even if both marketplace and the retailer are not established on their territory. According to the Secretary of Treasure of Rio de Janeiro, online marketplaces will receive a notice that the company is responsible for the VAT of certain taxpayers if they allow theses taxpayers to continue selling through the online platform.

Moreover, there are some companies reporting that some States, such as Minas Gerais, are imposing the same responsibility for online marketplaces without even issuing a law in that sense.

Nevertheless, the understanding of the legal community and private sector on this matter, is that this responsibility cannot be imposed by State Laws. This kind of obligations must be set on a Federal Law in order to respect both constitutional rights and harmonization of tax obligations in the Brazil. The disorganized implementation of new tax obligations highly increases the compliance costs of companies and can bring some difficulties to the economic growth of this sector.

In a sense, what these Brazilian tax administrations are doing is very similar to the leaked plan of UK HM Revenue & Customs according to International Tax Review’s article, “UK will force online marketplaces to collect overseas sales VAT”4 and Financial Times5, i.e., treat online marketplaces as the vendors that are responsible for handing over VAT to the government. The difference, however, is that Brazilian legislations generates this type of conflict domestically, while the discussion in UK is related to overseas companies.

It may be a trend on global tax administration to ensure its fair share of the sales managed through online marketplaces – which we do not agree -, but we truly believe that measures that could implies tax responsibilities to corporation must be discussed and draft along with the private sector, as it may discourage the development of new business models and inhibit new tech. An alternative foresaw by the Brazilian online marketplaces companies is to render to the State Governments information regarding the vendors, making possible to tax administrations address the charges properly.

Felipe Wagner de Lima Dias
Partner | Arbach & Farhat Advogados
+55 11 2615 4313

Luan Moreira
Tax lawyer | Arbach & Farhat Advogados
+55 11 2615 4313

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