Retaliation to Trump's Tariffs Would Scare Off Investors, Experts Say
While economists believe that a reciprocal reaction from the federal government to the US taxation of Brazilian products could lead to inflation and devaluation of local companies, tax experts and lawyers point to the breaking of patents and the taxation of large companies as options.
Starting August 1, items produced in Brazil will pay a 50% tariff to enter the North American market , in response to the trial of former president Jair Bolsonaro (PL), accused of attempted coup d'état, according to a letter published by the President of the United States, Donald Trump this week.
On Thursday (10), the President of the Republic, Luiz Inácio Lula da Silva (PT), said that, if a solution is not found for the taxes announced by Donald Trump to Brazil by August 1, the measure will be applied.
Celso Figueiredo, a lawyer specializing in foreign trade, explains that the legislation lacks specific regulations.
"Theoretically, the law must undergo an interministerial discussion within the Foreign Trade Chamber. From there, the president can also speak to the private sector in this regard. Or Lula can simply issue a presidential decree, increasing tariffs in whatever format he sees fit," says Figueiredo.
The lawyer adds that the law of economic reciprocity allows for so-called cross-retaliation , when there is a countermeasure directed at parties that are not directly affected by the decision.
“It is not yet clear what path, procedurally speaking, Lula would take to do this, but it could be within the umbrella of the law of reciprocity, or as a consequence of the action that Brazil will take at the WTO,” says Figueiredo.
The tax specialist explains that it is possible for the federal government to create specific taxes to tax North American multinationals, such as Meta and Alphabet , owner of Google, for example.
“The Union has the established authority to create withholding taxation for cases in which multinationals located abroad are hired by Brazilian companies or individuals,” says the expert.
Márcio Alabarce, also a tax specialist and partner at Canedo, Costa, Pereira e Alabarce Advogados, says that it is possible to tax dividends , that is, profits distributed from the subsidiary to the head office.
"In Brazil, what is happening is a profusion of initiatives to tax dividends, including remittances abroad, but without rethinking income tax as a whole and without creating incentives for profit retention and reinvestment," he explains.
The measure, however, could have a side effect of driving companies away from the country.
"Increasing the effective tax rate in Brazil will ultimately have a direct impact on companies' valuations , making investment in Brazil even less attractive than other destinations for capital," says Alabarce.
CNN Brasil
