Brazil’s tax reform and Constitutional Amendment 141, which establishes a 5x2 work schedule, are expected to affect the costs of public-service concessionaires. Their contracts generally allow financial rebalancing when a risk assigned to the public sector materializes, but the scope of that adjustment remains contested.
The tax reform is due to begin replacing existing taxes in 2027. On October 21, São Paulo’s transport regulator, Artesp, opened a public consultation on a draft procedure for calculating contract adjustments. The proposal draws on a study commissioned by the state’s investment partnerships secretariat and prepared by Fipe, the Institute for Economic Research Foundation.
The main disagreement concerns indirect effects. The direct impact of tax changes, such as a new rate or tax base, is broadly accepted as grounds for rebalancing. There is also agreement that tax credits available to concessionaires should benefit the public authorities and users. The disputed question is whether changes in the prices of goods and services further along the supply chain should also count.
A similar issue arises with the 5x2 schedule. Higher payroll costs are generally considered eligible for rebalancing, but there is no consensus on whether concessionaires should also receive compensation for more expensive goods, equipment and services purchased from third parties.
The methodology will also need to distinguish changes caused by public policy from costs that companies could have managed themselves. Tax planning and the management of operating costs are considered the concessionaire’s responsibility, while changes to tax rules and legally required employment costs are attributed to the public sector. Adjustments based on a company’s actual costs, rather than an expected level of efficiency, could reward inefficient management, the article argues.
Financing is another point of contention. If tax reform reduces borrowing costs because of changes to the tax treatment of the financing chain, it is unclear whether that saving should be returned to users or retained by the concessionaire as a financial risk. Brazil’s civil aviation agency, Anac, previously treated an increase in the financial transactions tax along a financing chain as a concessionaire’s financial risk in a case involving Galeão airport.
At the federal level, the outcome will involve the Attorney General’s Office and the Federal Court of Accounts, both of which have formed working groups. The court’s broader case law on administrative contracts allows indirect effects to trigger rebalancing when a causal link is demonstrated.
Simulations by Felipe Sande and Bernard Appy suggest that lower input costs could be substantial, reduce the amount owed to concessionaires and provide a significant benefit to users. The central question, therefore, is how far contract adjustments should extend: beyond direct tax changes and credits to include wider effects on costs, financing and the prices paid by users.
Sources: Folha Mercado.