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EU Challenges 'Protectionist' Brazilian Tax Perks

by Ulrika Lomas,, Brussels

22 December 2014

The World Trade Organization on December 17, 2014, established a panel to examine a complaint by the European Union that several Brazilian programs in the automobile, information, communications technology and automation sectors confer tax advantages on domestic products over imports.

At present, goods manufactured in the EU and sold in Brazil face higher taxes than Brazilian products, because domestic products can benefit from exemptions from or reductions in the internal taxes imposed in various sectors. These tax breaks, which have been introduced in recent years, are aimed at encouraging the assembly of products with domestically made parts in Brazil, by subjecting imports of finished goods, in particular, to high tax rates.

The EU says that the tax on imported vehicles, for example, can be 30 percent higher than the tax collected on Brazilian-made vehicles. When combined with the customs duties levied at the border and other charges, the tax can reach 80 percent of the import value.

The EU also claimed its exporters are hurt by a requirement that Brazilian manufacturers must use domestic components in order to qualify for the tax advantages. The EU alleges that the measures help to shield uncompetitive Brazilian manufacturers from international competition and limit the choice of affordable quality products for consumers.

The EU said it was troubled by the continuous extension and expansion of these measures to cover an increasing number of sectors. Brazil said it regretted the EU's decision to request a panel, arguing that the measures in question are consistent with WTO rules.

TAGS: tax | tax incentives | World Trade Organisation (WTO) | trade disputes | Brazil | tax breaks | trade | Europe

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