Companies will pay VAT on employee benefits, such as cars and health plans, without using credit

BRASÍLIA – The proposed regulation by the federal government of tax reform provides that expenses made by companies with the purchase of vehicles for their employees and health plans are taxed and, therefore, the company will not be able to use the taxes it collected on these purchases to appropriate credits and deduct what it owes in taxes.

According to the special secretary for tax reform, Bernard Appythe interpretation is that these benefits are considered indirect wages and, therefore, their acquisition must be taxed both if it is done by the company and if it is done directly by the worker.

The principle of VAT is that it is not fully cumulative, in order to avoid the so-called cascade taxation. In other words: each sector of the chain will only effectively pay tax on the value it added to the product.

Thus, if a company purchases an input, for example, it can obtain credit for the tax paid, since, in the previous stage of the chain, this item has already been taxed. The company deducts what has already been paid and collects tax on the difference. This occurs so that there is no “tax on top of tax”.

According to the government project, however, in the case of expenses with benefits considered “indirect salary”, such as the purchase of vehicles for employees and health plans, it will not be possible to use this credit. This means that the company will not be able to use the taxes it collected to reduce what it owes in taxes.

The objective, said Appy, is to maintain the concept of neutrality in tax reform, which provides that similar products and services are taxed in an equivalent way.

The secretary states, however, that automobiles that are used in the company’s activities, as well as the payment of accident insurance and meal tickets should be considered operational expenses and, therefore, the company will be allowed to use the credits generated with taxes in acquisition of these items.

“Goods and services provided for personal use and consumption are considered in this article to include the provision of real estate, vehicles and communication equipment, communication services, health care plans, education, food and beverages and insurance”, says the text of regulation sent to Congress on Wednesday night, 24.

Appy also stated that the measure prohibits the risk of the company owner relieving his own consumption, placing this type of purchase in the company’s account, and not in his CPF.

“If I’m a worker and the company doesn’t give me health insurance, I’ll have to hire one, I’ll pay taxes. Why if the company contracts the same plan, will it not pay tax? If the company is from Simples, it will not recover credit. Why would a big company?” said Appy. “It’s a fair thing.”

One of the effects that the measure should have, according to the economic team, is that, with the new taxation, it will be indifferent whether a company decides to outsource the activity or not. “The tax at the end (in consumption, where it will be calculated) will always be the same”, said Daniel Loria, an economist who is part of Appy’s team.