Brazil Considers Tax on Cryptocurrency for International Payments

According to Cointelegraph, Brazil is contemplating the implementation of a tax on the use of cryptocurrencies for international payments. This development is part of the country's broader strategy to integrate a global crypto tax reporting data exchange framework. A report from Reuters, citing officials with direct knowledge of the discussions, indicates that the Brazilian government is keen on extending the Imposto sobre Operações Financeiras (IOF) tax to encompass certain digital asset-based cross-border transactions. Brazil's Federal Revenue Service recently announced that its crypto-asset transaction reporting rules will align with the global Crypto-Asset Reporting Framework (CARF), as per a legal act dated November 14. This alignment will enable the tax department to access citizens' foreign crypto account data through the Organisation for Economic Co-operation and Development's global reporting and data-sharing standard. Brazil's commitment to CARF was evident when it signed a statement supporting the framework in late 2023. This initiative follows reports that the White House is evaluating the Internal Revenue Service's proposal to join CARF, alongside a similar move by the Council of the European Union. In late September, the United Arab Emirates also agreed to participate in the data-sharing program. Currently, cryptocurrencies are exempt from the IOF tax, although crypto capital gains are subject to a 17.5% flat tax. The IOF is a federal tax applied to financial transactions, including foreign exchange, credit, insurance, and securities operations. Sources cited by Reuters suggest that the proposed tax aims to close a loophole and increase public revenue. The exclusion of digital assets from the IOF is perceived as a loophole, as these assets, particularly stablecoins, can function as a de facto foreign-exchange or payment rail, bypassing the taxes imposed on traditional methods. Officials have stated that the new rules are designed to ensure that the use of stablecoins does not lead to regulatory arbitrage compared to the traditional foreign-exchange market. This move aligns with the Brazilian central bank's recent introduction of new regulations treating some stablecoin and crypto wallet operations as foreign exchange operations. These regulations extend existing consumer protection, transparency, and Anti-Money Laundering rules to crypto brokers, custodians, and intermediaries. In April, Brazilian judges were authorized to seize cryptocurrency assets from debtors, addressing another loophole. The Superior Court of Justice noted that while crypto assets are not legal tender, they can be used as a form of payment and as a store of value.