Brazil opts for origin principle on e-commerce VAT

Wed 24th Sep 2014

In a move leaving it at odds with the OECD VAT Guidelines and practise in the rest of the world, Brazilian ICMS (VAT) will be charged on intra-state e-commerce sales on the origin principle.

As a consumption tax, most countries elect to make the location of the consumer the place of supply or taxation, and therefore expect to charge the local VAT. This means that when a shopper buys online from an e-retailer in a foreign country (origin), they are charged their country’s VAT (destination).

However, a ruling last week by the Brazilian Supreme Court means that where transactions are e-commerce goods shipped across a state, city or other taxing jurisdiction’s border, the tax of the merchant (origin) will apply. This tax will be ICMS (Imposto sobre Circulação de Mercadorias e Serviços de Tranporte Intermunicipal, Interestadual e de Comunicação), the local equivilant of Value Added Tax.

The case arose when 18 Brazlian states signed a pact to charge ICMS based on the location of the consumer.  The Supreme Court has now struck this down as unconstitutional.