Tax experts warn Brazil’s split payment system could lead to more lawsuits

Brazil’s tax reform includes a system called split payment, which automatically separates and collects tax when a payment is made.

Tax experts warn that businesses may challenge how the system works and whether it is constitutional in some cases.

The reform is initially set to apply to transactions between businesses, but one lawyer argues that applying it to consumer purchases would be unconstitutional because consumers cannot claim the related tax credit.

Supporters say the system could help prevent tax evasion and make it easier for businesses to check whether suppliers have paid tax.

Critics say it could tie up businesses’ working capital and lead to disputes over operational errors.

Without split payment, businesses may still have to check their suppliers’ tax compliance, which could also prompt legal disputes.

The debate has become part of Brazil’s political discussion, but the sources do not say what decision will be made about the system.