Originally published in the June 4 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s executive branch on May 28 submitted to Congress a complementary law project that would allow municipalities hosting the 2014 soccer World Cup to grant municipal service tax (ISS) breaks.
The project (Complementary Law Project No. 579/2010) corresponds with meeting FIFA’s demands of full tax breaks for Brazil to host the World Cup. However, because of constitutional restraints, the federal executive branch cannot grant tax breaks for taxes directly under the jurisdiction of states and municipalities. Tax breaks must be granted by each taxing municipality.
The project is important because federal legislation also prevents individual municipalities from granting tax incentives or tax exemptions that reduce ISS rates below 2 percent (to avoid harmful tax competition among neighboring municipalities). The solution was to create a federal law authorizing municipalities to reduce ISS rates below 2 percent.
ISS is a gross receipts tax levied on some services listed in federal legislation. ISS is also levied on imports of services, meaning services rendered by foreigners to Brazilian clients; in this case, the tax is paid by the (Brazilian) service purchaser.
Among the services that will benefit from future ISS tax reductions and exemptions in connection with the 2014 World Cup are civil construction and engineering services; accommodation, tourism, travel, and similar services; and local transportation services. The level of tax breaks and their extension will depend on the tax policy to be adopted by each municipality, whether or not it is responsible for hosting the event.
So far 12 cities, many among the largest in Brazil, have been elected by the Brazilian Soccer Confederation to host the World Cup: Rio de Janeiro, São Paulo, Belo Horizonte, Porto Alegre, Brasília, Cuiabá, Curitiba, Fortaleza, Manaus, Natal, Recife (PE), and Salvador.
David Roberto R. Soares da Silva