Brazil – Tax Reform and Taxation of Digital Marketplaces 

Background

From next year, Brazil’s indirect tax system is going to experience one of its most transformative reforms ever. One of the complex indirect tax systems worldwide will be gradually reformed. The reform got many setbacks and various postponements for different reasons. 

It shouldn’t be forgotten that Brazil has one of the most complex and most fragmented tax systems in the world. The tax regimes are organized at the central-federal, state, and municipal levels. The structure of taxes, the rates, and the collection methodology can be significantly different for the same type of supply depending on the rules applicable to the place of supply. 

The new model should simplify tax collection, reduce differences among state tax regimes, bring greater uniformity and less fragmentation, and establish a high level of certainty. 

The goal is to shift from highly fragmented regimes into a harmonized tax system that transparently brings together federal, state, and municipal requirements under a single framework. 

The regime should be established based on the Dual VAT system, which divides tax collection into two parts. The first part will be built around Contribution on Goods and Services (CBS), which will be under federal responsibility and will replace various types of taxes. 

States and municipalities will handle the second part of the tax collection responsibility. This new type of tax is the Tax on Goods and Services (IBS), which will replace ICMS and ISS. 

Tax Framework: Digital Marketplaces Present 

Complementary Law No. 214/2025 (the Law) is the backbone of the future regulatory framework in Brazil. This fundamental piece of legislation will replace several federal, state, and local taxes. It creates the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS). 

This legislation will redefine the applicable tax rules for the digital economy. It will introduce an entirely new mechanism for tax collection and accountability for all interconnected parties that hold a part in the related supply. 

For more than a decade, a certain level of uncertainty has surrounded the interpretation of tax rules applicable to parties in the digital economy ecosystem. This lack of harmonization and transparency in the rules creates confusion among digital service providers and digital platforms, both domestic and overseas. 

There is debate about whether platform operators should collect ISS (for intermediation services) or ICMS (for participating in the supply of goods). In many instances(legislative, legal interpretation)it has been confirmed that the e-marketplace operates only as a technical intermediary, and its activity falls under ISS. The Superior Court of Justice has also reaffirmed this approach in a recent decision. 

However, to disturb this “potentially agreed approach,” some Brazilian states ruled out this interpretation entirely. Their approach, fuelled by the desire to combat tax evasion, is based on the assumption that platforms should be held accountable for ICMS (Brazil’s state sales tax) owed by third parties. 

The lack of uniformity, which often negatively impacts tax collection, should be addressed by introducing the Dual VAT regime. The idea is to introduce the joint-liability statute for tax collection when the digital platform orchestrates the underlying transactions. 

The joint liability for IBS and CBS should establish much-needed certainty in the digital economy sector, clearly indicating who is responsible for tax collection and who can be held accountable when the principal party fails to comply with the law. 

Tax Framework: Digital Marketplaces What Lies Ahead? 

The promulgation of the new Law, which will gradually come into force, will unquestionably dispel many doubts regarding the understanding of the tax provisions applicable to parties in the digital economy supply chain. 

The Law introduces two initial tax frameworks, upon which the joint tax collection liability of platform operators is based. The first scenario occurs when the supplier is based abroad, and the platform intermediates in the transaction. In this situation, the platform is jointly liable with the purchaser for the collection and remittance of tax due. 

The second scenario occurs when the supplier is a domestic person who doesn’t issue electronic invoices. In both of these cases, the platform could be held liable for the collection of IBS and CBS. 

Split Payment and Tax Withholding

The Law supports the introduction of a split payment system or the issuance of e-invoices on behalf of third-party suppliers, which will limit or eliminate the possibility that the platform will be seen as liable for incorrect collection or non-remittance of owed tax. 

The implementation of the split payment system (withholding the tax sum) by the platform operators has been seen as a very effective tax collection tool that will limit platforms’ tax exposure when the underlying supplier isn’t complying with tax requirements. 

However, the split payment system carries practical risks for the platform operator. If the platform operator defines in its terms and conditions that it will withhold tax at the point of sale for each transaction, it bears additional responsibility, e.g., for accurate tax calculations, which are themselves very challenging to define in Brazil. 

So, in some cases, even if the platform has put in place “the best practice” available, it could be due to, e.g., suppliers’ inaccurate data or incorrect customer addresses, and end up being liable for X amounts of incorrectly collected tax. 

Gradual Roll-Out

The gradual rollout (2026-2032) of the new tax framework should iron out uncertainty and resolve many doubts regarding the introduction of a transparent tax framework applicable to both domestic and international digital service providers and related operating platforms. 

The shift from origin-based to destination-based taxation presents significant challenges for future tax collection and for claiming tax deductions, as the country’s interstate tax regimes could still differ. 

The many uncertainties that come with the new Law and new Dual VAT regime call for the adoption and implementation of Decrees and Guidelines to address the lack of certainty and clarity that currently exists.

Takeaway