How Brazil's tax reform is boosting software, IT market demands

Brazil’s tax reform will not only impact the way companies, individuals and states pay and collect their taxes, but also how software companies and consultancies deal with the new rules and help their clients adapt to the new, simplified regime.

In general terms, the overhaul will see five taxes being replaced by two: the IBS, a state and municipal tax, and CBS, a federal tax. Changes will come into full effect after a transition period that begins in 2026 and ends in 2033, and during which both systems will co-exist.

Certain rules still need to be defined, such as the IBS and CBS rates, some tax exemption regimes, and the so-called excise tax, which will be created for products seen as harmful to health and the environment.

Business consultancies, integrators and software companies are seeing an increase in interactions with corporates related to the changes.

Among the biggest IT integrators in Latin America, Sonda created an internal group at the beginning of this year to address the topic.

“We have seen an increase in demand for tax projects overall,” Leandro Risseto, Sonda Brasil’s tax product manager, told BNamericas.

According to Risseto, Sonda's solutions are being prepared for the new tax rules. Growth in customer demand, he said, is also related to the definition of investment plans and companies' budgets for 2025.

Sonda has hosted two large forums on the tax reform topic in the last four months, bringing together more than 500 customers and employees. During these forums, the greatest interactions and concerns came from clients in the industry, pharmaceutical, telecom, energy and oil and gas verticals, he said.

“However, in several meetings, other segments have queried us about the topic, such as sanitation, furniture, mining and services.”

Sonda is planning focused sessions with each sector, starting in November, to discuss tax specificities. 

The company also created a simulator that uses client data to compare the current tax model with the one the overhaul creates. 

“This simulator covers both the IBS and the CBS taxes, with configurations that allow our clients to exercise different scenarios in a simple and agile way to begin understanding the impact of the reform on their operations.”

Risseto said the lack of certain definitions, especially regarding the new rates and the tax collection method known as Split Payment, are hurdles.

This method automatically divides the payment of a transaction into two parts: the amount that goes to the seller and the corresponding tax amount that is transferred to the government.

Pending definitions

“With the little regulation in place, there is an expectation that a substantial part of work will be done by the tax solutions service providers,” PwC tax area partner Carlos Pedral told BNamericas.

Pedral said virtually all of PwC's main clients are concerned about the changes needed to implement the consumption-focused reform. 

In his view, corporates should take advantage of this moment to map and take a “snapshot” of their current systems in use, the integrations between them and the respective ecosystems through which their tax information passes. 

Companies are moving to understand, map and plan “their role in this equation,” Pedral said.

“The greater the volume of customizations, the greater the work companies will have in implementing the consumption tax reform,” he added.

A recent report from the Thomson Reuters Institute found that the most cited concerns among professionals in corporate tax departments about the reform plans are the overload of work and increased costs to learn and adapt their current tax management systems to the new rules during the transition period.

According to the study, tax professionals’ expectations around their management systems converge on two primary abilities: increased automation and accuracy in updated tax calculations, generation of ancillary obligations, and tax assessment; and agility in implementing new SPEDs (Brazil’s public system of digital bookkeeping) and electronic tax documents.

Updates

SAP, the world’s largest corporate software company, is working with clients and integrator partners to address the upcoming changes in the legislation and adapt its tax software solutions to the new rules.

SAP Brasil's solutions advisor manager, Franklin Bruno, told BNamericas that SAP is structuring the topic with its clients on three fronts: tax calculation, ancillary issues and invoices.

Tax calculation is already done by SAP as part of the company’s enterprise resources planning (ERP) solutions. The executive also said that there have been other tax changes in Brazil in recent years, although not of the same magnitude, which led the company to update its models.

Specifically regarding the tax reform, SAP sees similarities with the French and Canadian tax regimes and so the idea is to use the systems operating in these countries as a basis for companies in Brazil.

The executive also recommends that clients update their SAP environment to S/4HANA, the company's latest software version, which will be compliant with the new tax rules and is cloud based. The update is performed by SAP at no cost to the client. 

Contractually, SAP must continue to provide updates and services for previous versions of its main ERP solutions, such as the ECC, but only until 2027. S/4, by contrast, has contract terms lasting until 2034.

According to Bruno, some companies are preparing for the changes more quickly than others, especially those with operations in different states and in the industrial sectors. 

"The updates must be ready to go before the reform. Go live must be by December 31, 2025. If not, companies may have difficulties," he said.