(October 31, 2014)

On October 31, 2014, the European Commission issued a press release announcing that on October 31 the European Union requested the World Trade Organization (WTO) in Geneva to rule on a dispute concerning certain Brazilian discriminatory taxes. In the EU's opinion, the Brazilian tax measures give an unfair advantage to domestic producers and go against WTO rules. By taking the case to the WTO, the EU aims to re-establish a level playing field between Brazilian and European businesses and products.

According to the press release Brazil applies high internal taxes in several sectors, such as automobiles, information technologies, and machines used by industry and professionals. The press release continues by stating that the Brazilian products, unlike imported ones, can however benefit from selective exemptions or reductions. As a result, goods manufactured in the EU and sold in Brazil face higher taxes than Brazilian products. According to the EU the tax on imported vehicles for instance may exceed that collected on Brazilian-made cars by 30% of a car's value. Combined with customs duties levied at the border and other charges, this may amount in some cases to a prohibitive tax of 80% on the import value.

 

The press release continues by stating that in addition, Brazil restricts trade by requiring Brazilian manufacturers to use domestic components as a condition to benefit from tax advantages. According to the press release this promotes import substitution by inducing foreign producers to relocate to Brazil and to limit foreign sourcing. This hurts EU exporters of finished products and their components.

 

Furthermore the press release states that the challenged tax measures shield uncompetitive Brazilian manufacturers from international competition and limit the choice of affordable quality products available to Brazilian consumers. According to the press release a smartphone costs for example 50% more in Brazil than in the EU or in most other countries, even though manufacturers of IT goods in Brazil enjoy tax breaks ranging from 80% to full exemption.

 

At the EU's request, EU and Brazilian authorities held consultations earlier this year to try to resolve the dispute but to no avail. According to the press release, Brazil subsequently took further steps to extend and prolong some of its discriminatory taxation regimes. The press release states that significant tax relief measures for Brazilian IT goods and machinery were recently extended until 2029, whilst imports continue to be fully taxed.

 

The press release continues by stating that the EU is therefore now requesting the WTO to establish a panel of experts to rule on the matter, in order to achieve a fair, permanent and satisfactory solution. According to the press release the aim is to eliminate the cases of discrimination and unlawful tax incentives, without calling into question Brazil's tax policy as such or its development policies. The EU remains open to constructive engagement with the Brazilian authorities on the issues raised in the panel request. The European Commission states that in order to allow for further discussions on the specific issue of treatment for goods produced in Manaus and other free trade zones, the EU has excluded them from the scope of the legal action.

 

For further information click here to be forwarded to the press release as published on the website of the European Commission, which will open in a new window.

  

 

 

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