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Proposal to Tax Profits Remitted Abroad May Cost R$ 6.8 Billion to GDP, Reduce Investments, and Trigger Capital Flight, Warns Britcham.
The discussion surrounding the proposal to tax profits abroad has taken a new turn and is concerning business entities and investors. A survey conducted by the Brazil-United States Chamber of Commerce (Amcham) and the Brazil-United Kingdom Chamber of Commerce (Britcham) indicated that, if the project is approved as is, the GDP could lose R$ 6.8 billion in accumulated economic activity.
According to the chambers, the measure undermines the country’s attractiveness, threatens international competitiveness, and could lead to a dangerous flight of investments, at a time when Brazil is seeking to solidify its image as a safe destination for foreign capital.
GDP at Risk with New Tax Proposal
The proposal under analysis foresees the creation of a 10% tax on profits remitted abroad. Initially, the government estimates it could collect R$ 8.9 billion per year, but the Britcham study shows that the negative impacts would outweigh the revenue. For every R$ 1 collected, the economy would lose R$ 0.70 in productive activity, resulting in reduced investments and a decline in exports.
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The calculations indicate that:
- Investments would drop by R$ 4.3 billion;
- Exports would contract by R$ 2.8 billion, equivalent to the value of all cellulose exports in 2023;
- Household consumption would be reduced by R$ 2 billion;
- Strategic sectors would lose billions, such as the Manufacturing Industry (-R$ 1.8 billion), Civil Construction (-R$ 650 million), and Extractive Industries (-R$ 300 million).
Additionally, the measure would result in a net loss of 34,500 jobs, a number close to the total formal jobs in the pharmaceutical sector in certain years.
What Britcham Representatives Are Saying
In an interview with Times Brasil – Exclusive Licensee CNBC, Fábio Caldas, President of the British Chamber, was emphatic: “Brazil will lose a lot of competitiveness and investment if this clause is maintained.”
According to him, the entities do not criticize the bill as a whole, but the so-called third clause, which prevents the deduction of the amount paid in international tax from the calculation of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).
“It is extremely difficult to achieve this deduction on what you pay in another country,” Caldas stated, highlighting that the lack of compensation makes Brazil less attractive compared to other nations that offer more favorable tax regimes.
Risk of Investment Flight and Loss of Competitiveness
For the chambers of commerce, approving the project with the current clause would open the door to a flight of investments towards countries with more predictable tax legislation. Multinational companies could redirect operations and supply chains, directly harming the Brazilian economy.
The manufacturing industry would be the most affected, with an estimated impact of R$ 1.8 billion on GDP, followed by the construction sector, one of the largest job-generating sectors in the country.
This would create a domino effect: fewer investments, a decrease in production, reduction in jobs, and lower future revenue.
GDP Could Lose R$ 6.8 Billion: The Contradiction Between Revenue and Economic Impact
Although the government projects fiscal gains of nearly R$ 9 billion annually, the figures show that the net effect would be negative. The loss of R$ 6.8 billion in GDP reveals that the extra revenue would not compensate for the impact on the real economy.
Moreover, the reduction in household consumption, estimated at R$ 2 billion, is likely to impact the services and trade sectors, further deepening the recession.
Request for Review and Plea for Sensibility
After the data was released, Caldas made a “plea for sensibility” for the clause to be removed or revised. “Remove this clause and compensate with other mechanisms,” stated the President of Britcham, suggesting that the government seek less harmful alternatives to balance public accounts.
According to the entities, the ideal path would be to create compensation mechanisms that allow companies to deduct the tax paid abroad, preserving competitiveness and avoiding a distortion that could drive away strategic investments.
A Warning for Brazil’s Economic Future
The Britcham and Amcham study reinforces the importance of balancing the need for revenue with the preservation of economic competitiveness. Brazil is at a moment when it seeks to expand international agreements, attract foreign capital, and establish itself as an energy and agricultural powerhouse. A poorly calibrated tax change could jeopardize this movement and represent significant costs in the medium and long term.
The warning is clear: without adjustments, the proposal could cost billions to GDP, trigger contractions in strategic sectors, and reduce the confidence of international investors.
And you, do you believe that Congress will reconsider the clause criticized by the entities, or is Brazil at risk of losing global competitiveness with the new taxation?
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