Brazil's House Approves Bill of Law Revising Tax Treatment of Insurers

Brazil’s House of Representatives on August 20 approved a law project that would change the way the municipal service tax (ISS) is applied to insurance brokers, many of which are multinational companies, potentially increasing their tax burden in Brazil.

Complementary Law Project 144/2007, proposed by lawmaker Luciana Genro on November 27, 2007, would require insurance companies to pay ISS to the municipality where the insured property is located or where the insured person is domiciled. If converted into law, the law project will radically change how the ISS is levied on insurance brokerage activities. The law project next will be put to a vote in the Senate.

Insurance companies currently pay ISS only to the municipality where the companies are strategically headquartered, even if their insurance policies are sold through hundreds of branches throughout Brazil, including bank branches.

To attract insurance providers, many municipalities have opted to impose ISS at a rate of 2 percent, the minimum allowed by federal law. (The maximum allowable rate is 5 percent.)

The imposition of ISS payments where the insured property is located or where the insured person is domiciled would increase ISS taxation of insurance-related services, because many of those locations levy the tax at higher rates than those that apply where the insurance companies are located.

The change also would affect insurers’ costs, because the companies would need staff members that are familiar with local laws and would have to comply with all local tax obligations. Brazil has more than 5,550 municipalities, and compliance with the local ISS laws in each of them seems almost impossible.

Insurance companies may be the first to suffer from the decentralization of ISS, but they likely won’t be the last. A similar project (Complementary Law Project 65/2007), which would apply the same ISS treatment to leasing companies, is currently under debate in the House.

David Roberto R. Soares da Silva, tax partner, Azevedo Sette Advogados, São Paulo

Azevedo Sette Advogados