A few decades ago, there was a running joke to illustrate the extent to which the United States impacted Brazil’s economy: “when the United States catches a cold, Brazil is hit with pneumonia.” Over time the use of the phrase waned, as China surpassed the U.S. to become Brazil’s number 1 trading partner. Still, what happens to our North American neighbors continues to impact Brazil’s economy.
Such is the case with the tax reform proposed by Donald Trump’s administration. The American president promised the biggest tax cuts in U.S. history, which includes slashing the corporate rate from 35 percent to 20 percent. And that’s the part of Trump’s tax reform that risks hampering business in Brazil. We explain:
Right now, the U.S. system taxes corporate profits at 35 percent, but gives credits to companies that have already paid taxes abroad. Brazil imposes corporate tax rates of 34 percent. “So when multinationals make profits in Brazil, and send these profits back to America, they will pay only an additional 1 percent in taxes,” explains Eduardo Fleury, a Brazilian tax law expert.