Brazilian Taxation:

An Introduction

here is a very interesting website dedicated to taxation in Brazil, Portal Tributário, that maintains a very interesting complete list of all tributos levied in the country. We thought it would be fun to write something proposing annotated tentative translations for all of the 77 tributos mentioned in the list and that is how this article began. Then we thought it would be useless to prepare a glossary without first explaining a few basic terms as an introduction and when the introduction was finished we came to the conclusion it was already too long and convoluted. So, we decided to stop with the introduction. We hope you will find it useful. We must start with some basic information on how Brazil is governed.

There are three levels of government, often referred to in Portuguese as esferas: federal, estadual and municipal. The three levels--and only they--are allowed to impose tributos.

Município is often rendered as municipality, but this may lead to misunderstandings, because the English word more often than not refers to a primarily urban political unit, such as a city or town and its environs, a definition that implies the possibility that some areas may be wholly outside municípios. The Brazilian município is different, however: no matter where you are in Brazil, you are inside a município. This said, we believe in most contexts it would be more precise to render município / municipalidade / prefeitura with roundabout expressions such as local government or local authorities. Even prefeito could and should in most cases be translated as head of local government, to avoid the possibility of a misunderstanding.

Brasília and its environs make up the distrito federal--which is neither an estado nor a município, but combines both and is entitled to impose both tributos estaduais and municipais. So that tributos imposed in Brasília are known as tributos distritais. Such tributos do not differ from those imposed by estados and municípios. The word distrito has several other uses in Brazilian Portuguese, but only the Distrito Federal can impose tributos.

What is a tributo?

The fundamental law concerning tributos is the Código Tributário Nacional, usually abbreviated CTN, Law 5172/66. This is often rendered in English as the Brazilian National Tax Code, which is not bad as translations go. However, a more precise rendering would be Brazilian National Code of Levies, as we will see below. The CTN has been often amended and supplemented in various ways. The 1988 Federal Constitution, itself often amended, introduced important changes. The Presidência da República (Office of the President) maintains an excellent website with all Federal laws, showing all amendments adopted over the years. No registration required, all laws can be freely downloaded.

Article 3 of Código Tributário Nacional (CTN) defines tributo as "toda prestação pecuniária compulsória, em moeda ou cujo valor nela se possa exprimir, que não constitua sanção de ato ilícito, instituída em lei e cobrada mediante atividade administrativa plenamente vinculada." A rough translation into English would be "...any compulsory payment, except penalties for illicit acts, to be made in money or that can be expressed in monetary terms, that is required by law and levied through fully non-discretionary administrative acts."

The first translation for tributo that comes to mind is tax, of course. But tributo covers far more ground than tax does in English, as we will see. So we might say that a tributo is a levy. Levy, on the other hand, may include fines and the taking of property on execution to satisfy a judgment. In other words, levy covers more ground than tributo. In fact, using levy for tributo is just the lesser evil, but makes a great difference whenever a text discusses the several kinds of tributo.

Article 5 of the CTN mentions three types of tributo (espécies tributárias): impostos, taxas and contribuições; Article 15 adds empréstimos compulsórios (compulsory loans). Law and lawyers make a precise distinction between one of those types from the next; laypersons and even journalists, who should know better, sometimes don't. Contribuições are often referred to as impostos in non-technical texts, which may lead to some degree of added confusion.

Contribuições de melhoria. Perhaps the best way to understand how the system works is to start with contribuições de melhoria (CTN Art. 81). These are levied on private property to meet the cost of a public improvement that will result in an increase in the value of the property, something that is often called a special assessment, at least in the U.S. It is strictly a quid pro quo: you own a house in new development and the streets are still unpaved. The prefeitura imposes a contribuição de melhoria and uses the proceedings to pay the contractors who do the paving. Contribuições de melhoria are paid into separate funds and must be accounted for separately to ensure that the proceeds are used for their intended purpose. That is, the proceeds of a contribuição to pave a street must be used to pay the contractor in charge of the job and related expenses, not to build a hospital, for instance. Notice that this type of levy would hardly be treated as a tax in English, but is a tributo in Portuguese.

Contribuições especiais. The 1988 Constitution (Art. 148) created three additional types of contribuição. They are similar to the contribuição de melhoria in that the proceeds must be accounted for separately, to ensure that the funds collected are used for the specific purposes of the contribuição. In translating contribuições especiais, we must beware of two traps: the impression that it is a voluntary payment and the impression that it is special in the sense of nonrecurring. A contribuição especial is as compulsory and recurrent as any tax. To prevent the misunderstanding that they are voluntary, some translators prefer renderings such as compulsory contribution or mandatory contribution. Sometimes those contributions are referred to as contribuições parafiscais, meaning that the proceeds are not handled directly by the Government. This is not difficult to understand and will become clear a few lines below. Translating parafiscal into English does not seem to be an easy task, however. Parafiscal is what we call a "latent" word. English has para and fiscal in the same senses as Portuguese, but parafiscal does not seem to exist in English. A pity, isn't it? We may have to make do with something like "parafiscal" within quotes and an explanation.

Contribuições especiais are classified into sociais, de intervenção no domínio econômico and de interesse das categorias profissionais ou econômicas.

Contribuições sociais. These include several levies, the most important of which is the one paid to INSS, the Social Security authority. Social security also receives funds from several other contribuições levied, for instance, on lotteries. The first translation that comes to mind is social contributions which is very good English; the trouble is it means something different from contribuições sociais. Compulsory contributions for social purposes might be a better idea. Contribuições sociais are paid to autarquias (self-governing entities).

Contribuições de intervenção no domínio econômico. The purpose of these is to regulate production and prices of certain items. For instance, there is a contribuição de intervenção no domínio econômico relativa à importação de petróleo e seus derivados, levied on the import and sale of oil, natural gas and derivatives. As is the case of all contribuições, the uses of the proceeds are restricted. In this particular case, the funds must be used to fund certain subsidies, environment protection programs and road-building. These are roughly compulsory contributions for the purpose of achieving economic stability, if we are to follow Richard A. Musgrave's steps. Such contributions are paid to several entities indirectly administered by the government.

Contribuições de interesse das categorias profissionais ou econômicas. These are the strangest of all contribuições, because they are levied by the government and regulated by law, but are paid to class entities, of which there are three categories: sindicatos, entidades representativas de categorias sociais ou econômicas and entidades privadas ligadas ao sistema sindical.

Sindicatos are labor unions, an easy one for a change; entidades representativas de categorias sociais (class entities) are entities such as Ordem dos Advogados do Brasil (Brazilian Bar Association) and the several Conselhos representing other profissões regulamentadas (lincensed professions); entidades privadas ligadas ao sistema sindical are organizations such as Serviço Social do Comércio - SESC which run facilities where workers have access to health services and to cultural and recreational activities free of charge or for a nominal charge.

The fact that those contributions are not paid to the Treasury, but to other entities, some of which are not even part of the Administration, requires considering the distinction between competência tributária (right to impose taxes, administer taxes and collect the proceeds) and capacidade tributária (right to administer and collect taxes). Only the Federal, State, Local and Federal District governments have competência tributária. For instance, the Brazilian Bar Association can collect membership dues, but has no right to impose them. The obligation to pay the dues can only be imposed by the Federal Government.

Taxas. Then, we have taxas (CTN, Article 77), which arise from the exercício regular do poder de polícia, ou a utilização, efetiva ou potencial, de serviço público específico e divisível, prestado ao contribuinte ou posto à sua disposição. This poder de polícia (police power) is not restricted to the power to bring in the cops, but includes the power to exercise control over persons and property in the interest of the general security, health, safety, morals, and welfare (definition adapted from Webster III). That power is exercised through a host of fiscais (inspectors). The bit about the specific and divisible public service does not require additional explanation, we hope. The best translation for taxa probably is charge or fee, depending on the case. Notice, however, that what is generally known as a franchise tax, that is, the amount you have to pay for the privilege to do business in a certain place, is a taxa de licença.

An important source of translation errors lies in the fact that taxa generally means rate: a taxa de inflação is the rate of inflation, for instance. To avoid confusion, a tax rate is always alíquota in Brazil.

Impostos. Lastly, we have impostos. Imposto, as defined by the CTN in Art. 16, é o tributo ... independente de qualquer atividade estatal específica, relativa ao contribuinte. In short, it means the government does not have to do anything specific in exchange for the imposto. The Encyclopedia Britannica says taxes differ from other sources of revenue in that they are compulsory levies and are unrequited, which is a dandy definition for impostos except that the word unrequited is usually associated of love, not levies. Anyway, what this means is that no specific quid pro quo is required. A good example is income tax anywhere in the world: the government collects the tax and it is expected that the proceeds will be put to good use. Different from special assessments, however, you cannot expect something specific done for your benefit. The proceeds are commingled with the proceeds from other taxes in the same basket, so to say. By the way, fiscus, the origin of English and Portuguese fiscal, is the Latin word for the basket where the tax collector kept the tax take.

Probably the best translation for imposto is plain old tax. Impostos may be diretos (direct) or indiretos (indirect); pessoais (personal) or reais (real); proporcionais (proportional), progressivos (progressive) or fixos (at flat rates), but this should not offer too many difficulties.

Empréstimos compulsórios. Only the federal government can create empréstimos compulsórios (compulsory loans). We have not had one of these for many years now. As far as I know, none of them has ever been properly repaid.

Laudêmio. The laudêmio (laudemium), a leftover from Imperial times, is often confused with a tributo, although it is a mere obligation under contract. The Federal Union has a domínio direto (legal ownership) over certain plots of land and grants the domínio útil (roughly: equitable ownership) to people known as foreiros or enfiteutas who pay a foro (rent), and are allowed to sell their property rights to someone else, provided the laudêmio is duly paid.

In the manner of a conclusion. In the first article Danilo wrote on taxation, he said doing legal translation is like completing a jigsaw puzzle with pieces from a different puzzle. This is as true today as it was at that time. Tax experts whose knowledge is based on the Anglo-American tradition tend to see Brazilian taxation approximately as most of us see non-Euclidean geometry. Because the principles differ, it always looks a bit freakish, to say the least. Often, it is the translator who takes the blame for a text that doesn't seem to make much sense. Although we are not arrogant enough to believe we have found the perfect translation for the terms discussed here, we hope they will help readers make a little more sense of Brazilian taxation.