Brazil: Brewers pushing back against tax overhaul

Brazilian beverage producers, including groups that represent Ambev SA, Heineken NV and Coca-Cola Co., are pushing back against a tax overhaul they say will open up the industry to fraud and put their trade secrets at risk, ESM reported on October 14.

The government’s plan is to ask companies to self-report the quantity of ingredients they receive and the volumes they produce. That would replace the current use of machines to track how much soda or beer is being made - an expensive method that was meant to cut down on tax fraud but has ultimately been deemed overkill.

Changing the system will cut costs and make better use of revenue generated from state and federal taxes, which combined average about 44 percent for beer, the government says.

But the switch comes at a difficult time for Ambev, Brazil’s top-selling brewer, which is controlled by multinational giant AB InBev SA. To adopt the new system, companies will have to disrupt production at the end of this year, at the peak of summer in the southern hemisphere, according to the manufacturer of the current machines. And Ambev is still working to recover from a sales slowdown that hurt its first-half results.

The beer giants are also contending with an ever-growing crop of craft brewers, and they don’t want life to get any easier for the little guys. Trade associations for the beverage industry have said the new taxation method will make it simpler for smaller rivals to lowball their production numbers, letting them save on taxes and undercut the larger competitors on price.

In August, the Soda and Non-Alcoholic Drinks Producers Association, the Brazilian Association of Beverages, the Brazilian Beer Industry Association and the Brazilian Institute of Competition Ethics told Internal Revenue Secretary Jorge Rachid in a letter that they were worried about the replacement of the monitoring systems.

Ambev, Heineken and Coca-Cola declined to comment. Several calls and e-mails to Brazil’s Federal Tax Authority weren’t returned. The agency has given no indication that it will reverse or delay its decision.

14 October, 2016