POTENTIAL IMPACTS ON LIFE SCIENCES IN BRAZIL
The highly complicated tax system is one of the main hindrances for Brazilian economic growth and encouraging foreign direct investment. Several attempts have been made by the past and present governments to pass tax reform bills that simplify the system and create a suitable environment for foreign investment and start-up companies.
Most recently, the government tabled a tax reform bill (PL no. 3.887 / 2020) – “Contribuição sobre Bens e Serviços” – in English “Contribution on Goods and Services – CBS” or “IVA – Federal”.
The aim of this latest reform bill is to amalgamate the existing Programa de Integração Social (PIS) and Contribuição para Financiamento da Seguridade Social (COFINS) taxes.
Current PIS/COFINS legislation
PIS and COFINS are federal taxes charged on gross revenue – calculated and reported on a monthly basis as part of SPED EFD Contributions submission.
These taxes are determined using one of two tax regimes – Non-Cumulative or Cumulative:
IMPACT OF EXISTING LEGISLATION ON LIFE SCIENCES
Under law 10.865/04, the pharmaceutical and consumer healthcare industries enjoy special regime benefits to allow them to operate under the ‘single-phase regime’. This means:
- Non-cumulative regime rules apply when purchasing raw materials, components, and consumables for the manufacturing process
- The cumulative regime applies when pharmaceutical companies sell finished products to clients – under special rates
- Finished products are exempt from PIS/COFINS tax in subsequent commercial transactions
In Life Sciences, finished products are charged at different PIS/COFINS tax rates. This is based on the classification of products into three categories: Positive, Negative, and Neutral.
IMPACT OF THE PROPOSED CBS TAX REFORM ON LIFE SCIENCES
- PIS and COFINS taxes will be replaced by CBS tax with a 12% rate
The non-cumulative regime tax rate will increase from 9.25% to 12%
- The cumulative regime will be abolished
- Single-phase regime under which most life sciences products are taxed will no longer apply – PL no. 10.147/2000 will be replaced by 3.887/2020
- Certain pharmaceutical products currently taxed at 0% under the PL no. 10.865/04, will no longer have this benefit
- Products classified as food also lose the zero tax rate benefit
- Basic products (Cesta Básica) are exempted from the CBS taxes
- New CBS tax submissions for a given month are to be submitted by the 20th day of the following month, rather than the 25th day for current PIS/COFINS taxes
Key tax reforms
- PL 3.887/2020 – Introduction of new tax CBS
- PEC-45/2019 – Consolidation of 5 different taxes by creating a GST.
- PEC-110/2019 – Replacing existing 9 taxes with 2 new taxes.
Current PIS / COFINS Legislation:
PL no. 10.147/00
PL no. 10.637/02
PL no. 10.833/03
PL no. 10.865/04
- Non-Cumulative Tax regime rates: PIS @ 1.65% and COFINS @ 7.60%
- Cumulative Tax regime rates: PIS @ 0.65% and COFINS @ 3.00%
CBS tax reform potential impact on life sciences:
- Increase in tax burden by 2.75% for non-cumulative regime.
- Cumulative regime abolished.
- Zero rate benefit on hospital products is abolished.
- PL 10.865/04 will be abolished.
- Basic products (Cesta Básica) are exempted from new law.