Brazil tax calculations
In most VAT systems, the taxable basis of standard transactions is the gross amount of the goods and services supplied:
Taxable Basis = Gross Amount.
But, under Brazilian tax law, the taxable basis is defined as the value of the operation, which is understood as the final price including taxes (grossed up):
Taxable Basis = Gross Amount + Taxes
Brazil tax authority types
Determination supports these tax authority types. The final column of this table shows the calculation methods associated with these authorities.
Tax authority type | Jurisdiction | Description | Calculation methods |
|---|---|---|---|
IPI | Federal | Tax on Industrial Products. VAT system applicable to goods only. | Brazil (Standard) or Inclusive Tax (Brazil only) |
ICMS | State | Tax on Movement of Goods and Services. It is a VAT system applicable to goods and certain services that are out of scope of ISS. | Brazil (Standard) or Inclusive Tax (Brazil only) |
ICMS-PF | State | Brazil IMCS Trava PF Price. Taxable basis is calculated based on the manufacturers published price for each EAN code. This authority's used to contribute the Pauta Fiscal PF published price to the authority for which the adjusted taxable basis is calculated (for example, ICMS Trava - Sao Paulo). | Tax Substitution Modified Basis (Brazil Only) |
ICMS-PMC | State | Brazil ICMS Trava PMC Price. Taxable basis is calculated based on the maximum consumer price for each EAN code. This authority's used to contribute the Pauta Fiscal PMC published price to the authority for which the adjusted taxable basis is calculated (for example, ICMS Trava - Sao Paulo). | Tax Substitution Modified Basis (Brazil Only) |
ICMS-RD | State | Buyer and Seller liability for ICMS in the destination state of an interstate transaction, arising from the rate differential between the applicable interstate rate and the ICMS rate of the destination state. | Rate Differential (Brazil Only)
|
ICMS-ST | State | Tax on the sale of goods as part of a specific segment of a product's lifecycle, including the anticipated markup of the manufacturer selling to a distributor or reseller. In addition to the standard Brazil authorities, these transactions also return the following:
| Tax Substitution (Brazil Only)
|
ICMS-ST-CNAE | State | Brazil ICMS CNAE Basis Adjustment. An adjusted taxable basis is calculated based on the CNAE code, which identifies a business practice within Brazil. This authority type's primarily used to calculate the ICMS-ST adjusted taxable basis in the Brazil state of Mato Grosso. | Tax Substitution Modified Basis (Brazil Only) |
ICMS-ST-CNAE-IVA | State | Brazil ICMS CNAE IVA Basis Adjustment. An adjusted taxable basis is calculated based on the Imposto sobre Valor Agregado (value added tax). This authority type's primarily used to calculate the adjusted IVA ICMS-ST taxable basis in the Brazil state of Mato Grosso. | Tax Substitution Modified Basis (Brazil Only) |
ISS | Municipal | Tax on Services. A cumulative tax system applicable to services that is defined by each municipality | ISS (Brazil only) |
IVA | State | The markup percent applied to the ICMS taxable basis to arrive at the taxable basis for ICMS-ST, where the corresponding state protocols apply. | IVA (Brazil Only) |
FCP | State | Poverty Fund Combate. An ICMS additional rate, which applies on specific products depending on the state legislation. | Inclusive Tax (Brazil only)
|
FCP-ST | State | Poverty Fund Combate. An ICMS-ST additional rate, which applies on specific products depending on the state legislation. | FCP-ST (Brazil Only)
|
PIS | Federal | The Social Integration Program, and is defined as a social contribution. | Brazil (Standard) or Inclusive Tax (Brazil only) |
COFINS | Federal | The contribution for the financing of Social Security. Defined as a social contribution. | Brazil (Standard) or Inclusive Tax (Brazil only) |
II | Federal | Importation tax (duties). Determination provides this authority type as a custom authority template only. This authority is required to calculate taxes due on importation of goods. It is based on a gross amount equal to the Custom Value (price exclusive of taxes), the default treatment by Determination. You can override that assumption by using the calculation method of Inclusive (Brazil only). No standard rates or rules are provided for this authority type. Use the custom authority template provided by Determination, and establish custom rules and rates. | Brazil (Standard) |
PIS and COFINS
These tax types have non-cumulative liability. Unlike cumulative liability, they allow deduction of input tax credits under certain conditions. In non-cumulative liability, companies must account for PIS and COFINS on a transaction basis, making them similar to value-added taxes.
Brazil business processes handle PIS and COFINS differently due to the special nature of these levies. Because PIS and COFINS are not technically considered indirect taxes, there's no requirement to print the PIS and COFINS tax amounts on an invoice, although they'd be included in other tax documents. But under the non-cumulative regime, taxpayers are allowed to deduct input tax credits and must account for PIS and COFINS in every transaction.
Goods
On Brazilian tax invoices, the product amount's used for the supply of goods, indicating the value of the product. It includes all costs plus PIS, COFINS and ICMS. IPI isn't generally included in the product amount. For importation, the customs value applies instead.
Services
The service amount on a Brazilian tax invoice's used for the supply of services, indicating the value of the service. It includes all costs plus PIS, COFINS and ISS.
Business supply flag
When used in a transaction involving a Brazil tax authority, the business supply flag indicates whether the supply's meant for final consumption or resale.
When the business supply flag's set to Yes (Resale), the IPI tax amount isn't included in the taxable basis of ICMS: ICMS Taxable Basis = Cost + ICMS + PIS + COFINS. The Business Supply flag must be set to Yes (Resale) for ONESOURCE Determination to calculate ICMS-ST. When the business supply flag's set to No (Final Consumption), the IPI tax amount's included in the taxable basis of ICMS:
- ICMS:ICMS Taxable Basis = Cost + ICMS + PIS + COFINS + IPI
- ICMS-ST Taxable Basis:(Product Amount (Gross Amount) + (Gross + PIS + COFINS + IPI + ICMS)) * Adjusted IVA%)
- Adjusted IVA:[(1 + 'Original IVA') x (1 - 'Interstate Rate of Ship From State') / (1 - 'Internal Rate in Destination State')] - 1
- ICMS End Consumer:ICMS Taxable Basis = Cost + ICXM_RATE SHIP TO + PIS + COFINS + IPInoteThe Buyer registration must be empty for ICMS End Consumer to apply.
Pauta fiscal for ICMS and ICMS-ST
Brazilian tax authorities that implement state-level Pauta Fiscal rely on one or more of the following processes published by the government:
- PF: Manufacturers Published Price
- PMC: Maximum Consumer Price
These prices define the adjusted taxable basis for ICMS and ICMS-ST.
Sao Paulo and Mato Grosso handle Pauta Fiscal differently from other states:
- Sao Paulo: PF and PMC apply to both intrastate and interstate transactions, and both published prices are typically used to contribute to the adjusted taxable basis for ICMS and ICMS-ST. The ICMS-PF Authority Type's used to contribute the PF published price to the ICMS Trava Sao Paulo authority taxable basis. The ICMS-PMC Authority Type is used to contribute the PMC published price to the ICMS Pauta Sao Paulo authority taxable basis. After the adjusted taxable basis for both ICMS Trava Sao Paulo and ICMS Pauta Sao Paulo authorities are calculated, Determination compares the two taxable basis to determine which is a larger value:
- If the ICMS Trava Sao Paulo authority taxable basis is greater than the ICMS Pauta Sao Paulo taxable basis, the ICMS Trava Sao Paulo taxable basis is contributed to the ICMS-ST Sao Paulo authority.
- If the ICMS Pauta Sao Paulo authority taxable basis is greater than the ICMS Trava Sao Paulo taxable basis, the ICMS Pauta Sao Paulo taxable basis is contributed to the ICMS-ST Sao Paulo authority.
- Mato Grosso: This state doesn't use the government published prices (PF and PMC). Instead, Mato Grosso uses discount percentages to adjust the taxable basis for ICMS and ICMS-ST based on the National Code of Economic Activity for the Comprehensive Guaranteed ICMS Program or the Simplified Estimation Regime.
- Comprehensive Guaranteed ICMS Program: Determination uses a percentage to calculate the taxable basis and tax amount on the authority that uses the ICMS-ST-CNAE Authority Type and ICMS-ST-CNAE-IVA Authority Type. The tax amounts of both corresponding Mato Grosso authorities are compared to each other. The smaller of the two tax amounts is the ICMS-ST tax result.
- Simplified Estimation Regime: Determination uses a percentage to calculate the taxable basis and tax amount on the authority that uses the ICMS-ST-CNAE Authority Type.noteIf your business uses the simplified estimation regime, you must include the term SIMPLE as the value in the End Use field to apply the logic for this regime.
Brazil calculation methods
The Brazil calculation methods provided by Determination determine the applicable formulas to apply for tax calculation in each case (for example, importation or domestic, goods or services, or inclusive or exclusive). The specific formulas for calculation of taxes due on Brazil importation are included in all calculation methods.
See this table for descriptions of the calculation methods.
note
Except for the inclusive (Brazil only) calculation method, Determination assumes that the gross amount doesn't include the related tax amount when product rules are applied that use the Brazil (standard), ISS (Brazil only), tax substitution (Brazil only), IVA (Brazil only), or importation (PIS or COFINS) calculation methods. These methods also evaluate other taxes that are applicable to the same transaction to determine if their respective tax amounts have been included in the gross amount.
Calculation method | Description |
|---|---|
Brazil (Standard) |
|
ISS (Brazil only) | Use this calculation method for ISS authorities as an alternative to Brazil (Standard), although the calculated results are the same. |
COFINS Importation | Use this calculation method for COFINS authorities for importation transactions as an alternative to Brazil (Standard), although the calculated results are the same. |
PIS Importation | Use this calculation method for PIS authorities for importation transactions as an alternative to Brazil (Standard), although the calculated results are the same. |
Inclusive Tax (Brazil only) | An inclusive tax affects calculation of all Determination supported Brazilian taxes.
|
Tax Substitution (Brazil Only) | This calculation method applies to ICMS-ST and refers to tax on the anticipated mark-up to a distributor or reseller. |
Tax Substitution Modified (Brazil Only) | This calculation method applies to ICMS-ST and refers to tax on the anticipated mark-up to a distributor or reseller, with a modified basis to apply the grossed up concept on ICMS-ST results. This is in accordance with Convenio 51/2017. |
IVA (Brazil Only) | This calculation method supplies the IVA mark-up percentage for both intrastate and interstate transactions.
|
Rate Differential (Brazil Only) | This calculation method's used to determine buyer and seller liability for ICMS in the destination state of an interstate transaction, due to the difference in the interstate ICMS rate and local ICMS rate in the destination state. |
Rate Differential Modified (Brazil Only) | This calculation method's used to determine buyer and seller liability for ICMS in the destination state of an interstate transaction, due to the difference in the interstate ICMS rate and local ICMS rate in the destination state. Includes a modified basis to apply the grossed up concept on ICMS-ST results in accordance with Convenio 51/2017. |
FCP-ST (Brazil Only) | Use this calculation method for FCP-ST authorities. |
Audit considerations
All the authorities in the examples above are audited, but there are some special considerations for IVA and ICMS (Ship To). Rates get returned in Audit for these authorities, and taxable basis and tax amount are zero:
Authority | Tax type | Description |
|---|---|---|
IVA | MP | The Tax Substitution Markup Percent. |
ICMS (Ship To) | MA | The ICMS internal rate in the Ship To for Markup Adjustment Percentage. |
FCP (Ship To) | MA | The FCP internal rate in the Ship To for Markup Adjustment Percentage. |