Regional Review – Latin America 2024

New Transfer Pricing Model – The former Brazilian administration passed an OECD based TP legislation, that promoted major changes in the calculations for multinational companies in Brazil and Brazilian companies with branches and manufacturing abroad, from January 1st 2024. All basic concepts of the new TP Model will be similar to what is in place in each OECD member country. The question mark here is the interpretation that Brazilian Revenue Services will give to the concept of “market average prices”. Directors of BR IRS, when questioned by us, informed us that they will “determine the ranges to be used”, which is not an official opinion, of course, but one that infers that the freedom of research of such market equivalents may be subject to closer scrutiny. 

Tax Reform – A tax reform that may result in the largest VAT in the world has passed in Brazil and is still being regulated by BR IRS. The new rate is expected to be at least 27.5%, most probably 30% or slightly more and is known as the IBS-CBS VAT2. This is a long reform that will start showing its effects in 2025 and in full force by 2031. The best news here is the apparent guarantee of full credit of IBS-CBS on all invoices received by companies, which is not a reality under the present system. This somewhat balances the effect of the high rates but will certainly affect the end consumer directly, which means that the lower income individuals will suffer more. 

Inflation – with the present budget deficit, holding inflation within the variation range, centered on a 3.5% target (1.5% to 5.5%) will be a challenge for the new president of the Central Bank, who will be inaugurated in July 2024 for a mandate of 4 years. Depending on the quality of the professional, and his/her abilities to fulfill the mandate of keeping the Brazilian Real stable and inflation at the proposed ranges, we may see a relatively stable economy, as it has been now, even with the cloudy horizon of our deficit, or a relatively loose control of interest and currency, with inflationary repercussions. 

Growth – The present administration (Lula 3) has repeated the plan put in place in earlier administrations (Lula 1 and 2 and Rousseff 1) of fostering the “National Champions”. In the past, this has resulted in the creation of some large companies, such as JBS (Protein) and other smaller names, with an international presence. On the other hand, it has generated concentration and “oligopolisation” of sectors. New “champion sectors” and companies are now being selected by the federal government. Along with this, it is considered that the tax reform will take its toll on the economy only from 2026 on, but with immediate reactions from some affected sectors. 

Serious Tax Studies on the present and future effects of Tax Reform – A few companies, with the possible exception of the largest ones, are duly preparing for the impacts to be seen in the future.  

Supply Chain Studies – Companies that import and resell manufactured items in Brazil normally lack specific studies to take advantage of potential COO – Country of Origin Custom Duties rates, and its cascade effect in all other taxes on imported goods. The application of SKD and CDK3 importations with parts being sourced and assembled in Brazil sometimes has a huge impact on the final costs. The impact of Mercosur sales and incentivized loans (provided by Brazil Development Bank) for the acquisition of machinery of COO are large and largely used in the country. 

Corporate Finance Consulting: In the complex Brazilian market, we have expertise in working capital management, optimal capital structure (in a country with high interest rates), equity and debt fundraising, in addition to the feasibility of new business analysis. 

Regionwide and Worldwide BPO contracts – We, as the Praxity Alliance, have traditionally worked with some common clientele, without going as far as pooling together to provide regional, seamless services. The Americas, particularly, show a great opportunity for such a “go-to-market” approach to Business Process Outsourcing accounts for larger organisations. Coordinating that approach, rather than seeking providers country-by-country, can be done extremely well in Praxity’s alliance model.  

Risk Advisory Contracts – The same kind of services mentioned above, in BPO, can be done for larger corporations with the need of SOX, IT SOX, FCPA, or other concerns. We believe there is room here for cooperation and obtaining larger, regional or worldwide contracts.