The Brazilian government has been trying to catch up on a number of areas of the digital economy, one of them being online cross-border taxation - but not without controversy.
During the Mobile World Congress (MWC) last month, the Brazilian communications minister Paulo Bernardo said Brazil is a "tax haven" for online international companies. Using Google as an example, the minister was quoted as saying that the fact services provided in Brazil were often paid for with international cards made the tax collection for those services impossible.
Citing Google Brazil's R$3.5bn on advertising revenue, Bernardo questioned whether tax had been paid on that amount. "Is that money being taxed? The same taxes paid by traditional media? I don't believe it is," Bernardo told reporters at the MWC.
The minister added that there is a lack of transparency in how companies such as Google and Facebook operate and that the tax affairs of these companies should be investigated. In separate occasions, Bernardo also defended the taxation of services provided by companies such as Netflix.
Google Brazil president Fabio Coelho then issued a response to the minister's claims last Friday (7), saying that the internet giant paid R$733m ($313m) in tax to the Brazilian government during 2013 and R$540 ($230m) in 2012. Coelho also added that Google Brazil's sales operations are invoiced locally and that any information is available to the Brazilian tax authorities.
While Google was keen to make the point that it is tax-compliant in Brazil, this continues to be a grey area for many companies who sell services in the country. International companies – particularly those selling online services - such as Facebook often issue invoices from a country that is not where the service takes place.
Corporate taxation is usually focused on profit rather than revenue so it is simple for global corporations to move profit and loss around to the most favorable locations. This has always been the case, but with digital products the question of where tax should be paid gets confusing.
Whatsapp is the most popular messaging tool in Brazil, but even though millions of users are paying a dollar a year to use the system, where is the tax on those profits being paid? Probably in the United States, but the politicians would argue that it should be where the service is consumed.
Taxation of anything is a constant political hot potato, and taxation of online commerce is no exception. And Brazil is also finally realizing just how important taxes are to its own revenues, as well as the value of data.
But there is also an interest to continue to make it as easy as possible for online companies to grow, hire more people and stimulate the economy as a whole - and having senior government ministers making accusations publicly instead of figuring out a way to deal with this situation is probably not a great idea.