Brazil is reportedly considering the implementation of a tax on the use of cryptocurrencies for international payments as the nation moves towards adopting a global crypto tax reporting data exchange framework.
According to a Reuters report citing officials with direct knowledge of the discussions, the Brazilian government intends to tax cryptocurrency usage in cross-border transactions.
During confidential discussions, representatives from Brazil's finance ministry indicated an interest in extending the Imposto sobre Operações Financeiras (IOF) tax to encompass certain digital asset-based international transactions.
Concurrently, Brazil's Federal Revenue Service announced that its reporting regulations for crypto-asset transactions will be updated to align with the global Crypto-Asset Reporting Framework (CARF), an international standard developed by the Organisation for Economic Co-operation and Development (OECD). This alignment was formalized in a legal act dated November 14.
This integration into the CARF framework will grant the tax department access to citizens' foreign cryptocurrency account information through the OECD's global data-sharing standard. Brazil's commitment to CARF was previously signaled when it signed a statement in favor of the framework in late 2023.
This development follows recent reports indicating that the White House is reviewing a proposal for the Internal Revenue Service to join CARF. The Council of the European Union, representing the finance ministers of the EU27, has also been reported to be considering a similar move. In late September, the United Arab Emirates also signed an agreement to participate in the CARF data-sharing program.
Brazil Takes Steps to Address Crypto Tax Loopholes
Currently, cryptocurrencies are exempt from the IOF tax; however, capital gains derived from crypto assets are subject to a 17.5% flat tax. The IOF is a federal tax levied on financial transactions, primarily those involving foreign exchange, credit, insurance, and securities.
Sources suggest that this proposed tax expansion aims to close what is perceived as a loophole and to increase government revenue. The exemption of digital assets from the IOF tax is seen as a loophole because these assets, particularly stablecoins, can function as de facto foreign-exchange or payment mechanisms, thereby bypassing taxes applied to traditional methods.
Government officials stated that the new regulations are intended to "ensure that the use of stablecoins does not create regulatory arbitrage vis-a-vis the traditional foreign-exchange market."
Further Regulatory Tightening on Crypto in Brazil
This initiative aligns with recent actions by the Brazilian central bank, which introduced new rules this month classifying certain stablecoin and crypto wallet operations as foreign exchange transactions. These updated regulations extend existing consumer protection, transparency, and Anti-Money Laundering (AML) requirements to crypto brokers, custodians, and intermediaries.
In April, Brazilian judges were granted the authority to seize cryptocurrency assets from debtors, addressing another potential loophole. A memo from the Superior Court of Justice, in its translated form, indicated that although crypto assets are not legal tender, they can be utilized as a form of payment and as a store of value.