On 1 April 2025, the Brazilian Senate approved bill of law No. 2.088/23 (the Bill or proposed legislation), concerning tariff and environmental reciprocity.

The proposed legislation sets the stage for adopting economic and environmental retaliatory measures if actions by other countries negatively impact the competitiveness of domestic production or violate commercial agreements.

The Bill will now be forwarded to the Chamber of Deputies for analysis.

Background

Originally presented in 2023, the Bill intended to mandate compliance with environmental standards compatible with those of Brazil for goods available in the Brazilian market. Specifically, it proposed to restrict the availability of goods and products from economic blocs and countries that impose any form of environmental restrictions on international trade.

However, the scope of the Bill has been expanded in response to ongoing tariff escalations and potential retaliatory measures that may be announced by the new United States Administration. Now, the Bill establishes criteria for suspending trade concessions, investment agreements and obligations related to intellectual property rights. This expansion aims to address unilateral actions, policies or practices by countries or economic blocs that negatively affect Brazil's international competitiveness.

Current proposed legislation

Specifically in relation to taxes, the proposed legislation would allow the executive branch to adopt differential Contribution on the Intervention in the Economic Domain (CIDE) rates to a specific country or economic block. The CIDE is a federal contribution imposed on (1) payments for the right to use or acquire technological knowledge and (2) payments in relation to contracts involving technology transfer with entities located abroad. This includes, among other things, payments for royalties and technical services.

The Bill also grants the executive branch the authority to modify the Contribution for the Development of the National Cinema Industry (CONDECINE) rate. This contribution is levied on the revenue generated from the distribution and exhibition of audiovisual works in Brazil, with the aim of promoting and supporting the national film industry. By allowing adjustments to the CONDECINE rate, the Bill seeks to enhance the government's ability to respond to changing economic conditions and to further encourage the growth of Brazil's cultural and creative sectors.

It is important to note that the Bill stipulates that any countermeasures taken should be proportionate to the economic impact caused by the actions, policies or practices outlined therein. Additionally, these countermeasures should be aimed to have minimal impact on economic activities and avoid imposing disproportionate administrative burdens and costs. Furthermore, diplomatic consultations coordinated by the Ministry of Foreign Affairs would be conducted to mitigate or nullify the effects of the measures and countermeasures addressed in the proposed legislation.

Implications

Multinational groups with operations in Brazil should closely monitor the progress of the newly proposed legislation, as it would introduce significant changes to trade and environmental compliance requirements. In particular, royalty and technical service payments abroad could face increased costs, potentially necessitating a thorough review of agreements and pricing structures. The Bill will now be sent to the Chamber of Deputies for analysis and, if approved, will subsequently be submitted to the President for sanction.