The Fintech’s Playground

XP’s IPO last week on Nasdaq, with a jump up more than 20% on its U.S. market debut (December 11), is the symbol of the arrival of a new era in the domestic financial market. This was a clear message to the country’s traditional financial institutions that innovation is a must. In this scenario, the Central Bank of Brazil (Bacen) launched at the end of November two important public consultations to promote the debate on technological innovations in the financial market, which has fostered Fintechs in the country. These are companies that work to innovate and optimize the services of financial institutions.

The first, Public Consultation No. 72/2019, is about the Regulatory Sandbox, which would be the creation of a controlled environment for testing financial and payment innovations. Just as playground sandboxes are an environment where children have fun and the socialization with other kids are tested, the idea of a regulatory sandbox is to allow companies that offer innovative products and / or services to operate within a pre-defined regulatory limit and under the supervision and evaluation of regulatory authorities. In this scenario, the flexibility of the rules is allowed, for a certain period and within the limits provided for in the proposed regulation, so that pre-selected companies act as an experiment in the already regulated sector, fomenting the development of new business models and the adoption of more modern and dynamic processes and systems; preserving, on the other hand, security, solidness and efficiency of the national financial system. It’s a test drive for innovation in the financial market!

In addition to the provisions regarding the regulatory sandbox, Bacen also launched Public Consultation No. 73/2019, which deals with the implementation of the Open Banking System. Aiming also at adapting to new business models, open banking allows data sharing between financial institutions, provided that there is the prior and express consent of the client and fulfilment of requirements already provided by current legislation on transparency and data processing.

Looking at the new proposals, we see an incentive from regulators to develop new business models. The modernization of the financial and capital markets is beneficial to the country’s economy, as it generates a more competitive and efficient environment. We have yet to await the final drafting and implementation of these new rules.

 By Luiza Martinez, associate at Candido Martins Advogados

2020: What reform do we want?

Another year has come to an end…

In 2019, the desire for a tax reform gained strength with the approval of the new pension system, focused on an administrative reform of the Union. By 2020, this desire is expected to be realized to boost the country’s economy.

Long before I started University, I am hearing about the need for a tax reform, and for the past twenty years working and studying tax law, I never believed I could witness such moment.

But 2019 was a year in which deep discussions were initiated demonstrating that, with political will, it is possible to make changes that can improve the tax system and also bring security for investments and thus collaborate for the economic and social growth of the country.

First of all, its important to clarify that this is not just about unifying taxes – which are not few! In addition to reducing the amount of taxes – and not only tax burden – a change in the mindset of taxpayers and tax authorities is necessary.

We need to demystify the idea that the country is the infamous Lion (symbol of the tax authorities in Brazil) and that taxpayers don’t want to pay taxes! The country needs to collect to be able to govern. And taxpayers need to know what taxes are due and to whom they are due, in order to be able to collect and demand from the authorities a return on the public services (eg. safety, health, education, etc.).

We want a reform that simplifies our tax system! Tax authorities and taxpayers are not enemies. They must be side by side to maintain a dialogue, whether in collecting, during a tax audit, whether in conducting a conflict, whether in defining an agreement. It is necessary to differentiate “taxpayers” from “tax evaders”. In complying with ancillary obligations that assist in providing clear and accurate information for a tax audit, objectivity is necessary.

We want a transparent reform. The taxpayer needs to know how to pay taxes in order to not be penalized by questions between the country`s own entities. The taxpayer wants to pay reasonable taxes and to the right persons. For this, it is necessary to clarify the tax competence without creating any doubts as to the exercise of economic activity.

Recently, at the request of the Brazilian Institute of Competition Ethics (ETCO), EY presented a study on the “Challenges of Tax Litigation in Brazil”, pointing out two elements that came to their attention: (i) huge volume of litigation, with tax lawsuits that last on average 20 years; and (ii) the complexity of the tax system, with approximately 390,000 norms since 1988, requiring numerous ancillary obligations, high tax burdens, high penalties and monetary correction, leading to increased litigation and the opening of periodic amnesty programs that only encourage litigation and penalize good payers, with competitive consequences for the market itself.

In Brazil, the average time spent in complying with ancillary obligations is 1,958 hours, according to a survey by the Federal Court of Accounts (TCU) – the longest among the countries of Latin America, the Caribbean and the Organization for Economic Cooperation and Development (OECD). ). And at the same time, we are currently the most modern, as almost all of these obligations are digital (e-Cac, e-Social, NFe, EFD, ECD, Siscoserv, etc.), with the crossing of information and broad knowledge as well as close to all activities exercised by the tax payers.

Such elements are not new to those who work in the tax area. But scandalizing this information and figures may help to encourage political will to decide and vote on a reform that changes this reality.

We need taxes that (a) are fair, simple, non-cumulative and progressive, focusing more on income than consumption, and reaches the entire population, observing the principles established by the Constitution (equality, contributory capacity, non-confiscation); (b) give taxpayers security, in compliance with constitutional principles (legality, non-retroactivity, priority); and (c) aim at the country’s development, taking care of the less favoured regions, following the principles laid down in the Constitution (tax uniformity) and definitively ending the fiscal war.

We are not dreamers, but only citizens who demand a change: by 2020 we want and expect serious, responsible and coherent tax reform that will not only remove this issue from the agenda, but put our finger on the wound and resolve the issue, refining the tax system focussing on simplification, transparency and effectiveness in the collection of taxes, allowing the authorities to govern and meet its obligations to society.

By Tatiana Del Giudice Cappa Chiaradia, partner of the tax area of Candido Martins Advogados