Brazil opts for origin principle on e-commerce VAT
- 24 September 2014 | Richard Asquith
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.