The Brazilian Senate approved on Wednesday, December 14, 2016, a bill that extends the list of services taxed at a minimum rate of 2% which is the competence of the municipalities. Among the services that will be taxed are the streaming platforms Spotify and Netflix.
The proposal was approved with broad support from the senators, with 63 favorable votes and only 3 opposing the project. As the bill had already passed the Deputies House, now it goes for presidential sanction and once sanctioned and published in the Federal Official Gazette, the law will have up to 90 days to enter into force.
The project predicts that the “provision, without definitive assignment of audio, video, image and text content over the Internet” will have be charged th ISS (Imposto sobre Serviços). In addition to Netflix and Spotify, other similar services like Apple Music, Deezer, HBO Go and the newly arrived Amazon Prime Video, will be directly affected.
Streaming companies have yet to comment on the Senate’s decision. Google, head of the Google Play Music music store, declined to comment. Spotify and Deezer were not immediately available for comment. Amazon said by note that “Prime Video is offered by Amazon from the US”.
“If the law is passed, we will assess the impacts on the business and what the adjustment needs are,” said a spokesman for one of the companies in the industry. “We are following and active in discussions about the changes that will be reflected in the market.”
The project also provides for the taxation of surveillance, security or monitoring services for goods, people and livestock, including when carried out by means of mobile telephony, satellite transmission, radios or other means. The aspects related to the areas of communication are currently taxed by the ICMS (Tax on Movement of Goods), which is the responsibility of the States.
The proposal had previously been vetoed during the Dilma government, because it was considered unconstitutional. The tax, however, will not be levied on books, newspapers, periodicals and on the modalities of sound broadcasting services and free reception of sounds and images (TVs).
Proponents of the measure affirm that it can alleviate the financial difficulties of the Brazilian towns.
The proposal also attempts to solve the problem of tax war between municipalities to determine where the ISS is collected from services such as credit or debit card transactions, as well as other online transactions.
The text states that the tax will be collected at the place where the contractor resides.
Netflix Growth in Brazil
Netflix grows in Brazil at an astounding rate. The streaming service, available in the country five years ago, doubled its size this year, from 3.2 million customers in September 2015 to 6 million subscribers this year, with revenues of R$ 1.2 billion. The platform surpassed SBT, one of the largest channels of the Brazilian open TV.
If it were a pay-TV cable operator, Netflix would be the second largest, behind only Net, which in October 2016 had 7.2 million customers. Sky would be in third place with 5.3 million subscribers. The numbers obtained by Meio and Mensagem were calculated according to data from internet login, data traffic and market research.
Brazilian Internet Growth
According to the publication, Brazil is among the three largest markets for the streaming service, not counting the United States. This may help explain why the company has invested in tv series produced in the country, such as “3%”, and in a reality show with the fighter Anderson Silva that should be released in 2017. The growth would be even greater than the global average of the company, which is 46% over the same period of the previous year.
Brazilian Taxes on Internet Streaming
Industry sources indicate that the streaming service does not collect PIS, Cofins, ISS, ICMS and Codecine (which is the fee paid on the registration of movie titles in the country). Added, these taxes would “save” R$ 378 million per year for the company.
Asked, Netflix states that “it is a company based in Brazil and pays all taxes due.”
Next year, the Brazilian National Cinema Agency is expected to launch a public consultation on the regulation of video-on-demand service. The measure, however, should pass through the National Congress, which may take years.