Brazil Considering Social Tax Reduction for Environmentally Responsible Companies

Brazil’s Chamber of Deputies (lower house of Congress) is reviewing a law project that would reduce taxes for environmentally responsible companies.

Law Project 3,072/2008 would reduce by 10 percent the rate of the social contribution on net income (CSL) for qualifying companies. The project, proposed to the chamber on March 25 by lawmaker Juvenil Alves, would create what some call a “green tax” because it considers the relationship between a corporate taxpayer and the environment.

Article 1 of the project establishes that taxpayers subject to CSL would be eligible for a 10 percent reduction of the CSL rate applicable to their businesses if they develop a program for environmental responsibility that is evaluated by an independent audit company, and implement an environmental management system (Sistema de Gestão Ambiental, or SGA) that follows the technical standards established by the Brazilian Association of Technical Standards (Associação Brasileira de Normas Técnicas). The CSL rate reduction would continue to apply as long as both the program for environmental responsibility and the SGA are in place.

If the project is converted into law, the executive branch will issue further regulations within 45 days of the law’s entry into force, as provided in article 3 of the project.

In his message to the Chamber of Deputies, Alves said that although local governments and environmental protection agencies have tried to monitor and protect the environment, their efforts have been insufficient to reduce the negative impact on the environment. He said products that harm the environment during production or use should be subject to higher taxation. Alves said tax policy should be guided by the environmental aspects of business activities, with incentives provided to taxpayers that protect the environment.

The project will be reviewed by the chamber’s commissions of Environment and Sustainable Development, of Finance and Taxation, and of Constitution and Justice. The commissions have conclusive powers, meaning that if all three approve the project, it will be forwarded directly to the Senate with no need for a debate and vote by the full House of Delegates.

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

Azevedo Sette Advogados