🌎 What is the definition of “well-established international standards” in tax policy?
On November 27, the Minister of Finance of Brazil announced a number of fiscal policy measures that would help the country stabilize public expenditure and correct imbalances in the taxation of income. Individuals earning up to BRL 5,000 per month (~ USD 837) are going to be exempted from paying income tax while those that earn over BRL 50,000 per month (~ USD 8,370) will be subject to a sort of “top-up tax” that ensures that their effective tax adheres to a progressive rate schedule (it is said that it will range from 5% to 10%).
More details about these measures will be available soon. From a tax policy perspective, however, it is interesting to note the language used by the Minister of Finance in his public statement. Among other things, he says that the increased taxation of the wealthy in Brazil will abide by “well-established international standards” (which is a rough translation from Portuguese – the original term is “consagrados”, which in a different context would express the idea of “consecrated”, “venerated”).
Whether you agree or disagree with the premise that imposing effective income tax thresholds on the wealthy is justifiable (and sustainable), it is important to highlight:
⬆️ This is the same government that, at the helm of the G20 Brasil 2024, commissioned a proposal that would ensure a “minimum effective taxation standard” for UHNWIs (which even included a reference to the UTPR of Pillar 2 to enforce the standard on a global scale). You can find the proposal authored by Gabriel ZUCMAN here: https://bit.ly/3ATyrEf
✅ What these expressions do (quite well) is create a bias in favor of their corresponding proposals in the minds of local legislators (many of whom have limited – if any – experience with tax policy). Lucas de Lima Carvalho wrote an article for Tax Notes on that topic in 2021. The article is titled “The Cognitive Bias of ‘Best Practices’ in International Tax Policy” and is available here: https://bit.ly/49ekPA3
✴️ That said, even the use of references to “best practices” or anything similar to incentivize change in domestic tax policy signals a completely different approach to the divide between (a) what is domestic and (b) what is international in the tax policy landscape. Márcio Augusto Campos elaborates further on this topic in his book titled “Direito Tributário Internacional: A Emergência de um Discurso Jurídico Transnacional sobre a Tributação”. You can find his book in Portuguese here: https://amzn.to/48OWJvv
⭕ One question related to the emergence of these standards and their impact on local tax policy choices is the degree to which local actors can contribute to their formation
