Elias, Matias Advogados | View firm profile
The tax reform represents a significant change in the Brazilian tax system, potentially affecting pricing, risk allocation, and, most notably, contractual obligations. The replacement of taxes such as PIS, COFINS, ICMS, and ISS with the Value-Added Tax (VAT), in the forms of CBS (federal) and IBS (state/municipal), alters the taxation of goods and services, requiring a review of business contracts to reassess clauses related to tax pass-through and price adjustments.
In Articles of Incorporation, the taxation of dividends and profit distribution must be reevaluated, as many companies are structured based on the exemption of these taxes. It will be essential to analyze whether this structure remains advantageous or if adjustments are necessary to ensure compliance with the new legislation. For instance, companies previously transferred assets to partners without taxation due to the existing exemption; however, such transactions will now be treated as sales, ensuring the collection of IBS and CBS. Consequently, asset-holding structures and dividend distribution methods will need to be reassessed, as the use of assets to “compensate” partners will now entail the tax burden of IBS and CBS.
The reform also impacts companies under the Simples Nacional tax regime by expanding the definition of gross revenue and including previously exempt revenue sources, thereby increasing the tax burden. Furthermore, micro and small businesses will no longer be allowed to have branches or representatives abroad.
Another critical aspect is the increased risk of litigation, as changes in tax payment responsibilities may lead to disputes over contractual balance, particularly in agreements executed before the reform. Companies that fail to revise their contractual clauses may encounter difficulties renegotiating prices or passing on additional costs, increasing the likelihood of judicial disputes or arbitration proceedings. To mitigate these risks, it is essential for businesses to seek legal counsel to review existing contracts and draft new provisions aligned with the new tax framework.
Thus, the reform demands careful attention to contractual implications to reassess existing clauses, mitigate risks, and prevent unforeseen financial impacts. Although the adaptation process is challenging, it presents an opportunity to enhance corporate and contractual structures, ensuring that companies are well-positioned to thrive in the new tax landscape.