Tax audit for ISPs: learn how to choose and maximize your VAS (Value Added Service).

November 9, 2021

6 minutes of reading

Internet service providers (ISPs) can certainly benefit greatly from hiring an ISP tax audit firm .

Primarily, when the goal is to maximize the benefits of Value Added Services (VAS) to provide tax savings .

In other words, the idea is to pay less tax through the strategic management of VAS (Value Added Services) solutions for internet .

A tax audit for ISPs, as a result, should enhance the business model and optimize the administration and management of internet service providers.

Why choose a tax audit for ISPs?

In principle, because a tax audit for ISPs leaves owners and managers of internet providers with better and more accurate information about the fiscal and tax issues of their business.

Above all, because a tax audit for ISPs enables effective strategic decision-making and fiscal management of VAS solutions for ISPs .

Certainly, effectiveness is a concept that encompasses three dimensions that are of great interest to the administration and management of internet service providers and, in fact, to any company: COSTS , RESULTS , and IMPACTS .

In this sense, the contribution of a tax audit to the management of ISPs is becoming clear. In short, it helps and facilitates the lives of managers when it comes to maximizing the benefits of VAS (Value Added Services) solutions for internet service providers .

Because a Value Added Service (VAS) for ISPs should always be a useful, cost-effective, and profitable solution for internet providers of all sizes (small, medium, and large).

Ultimately, unlike SCM (Multimedia Communication Service), VAS (Value Added Services) solutions for ISPs have a reduced tax burden . Not paying ICMS ( Brazilian state sales tax) means a huge tax reduction.

The other reasons for choosing a tax audit for ISPs have already been explored in detail in our previous articles on VAS for internet service providers .

Learn more on the Lumiun Blog :

Tax audit for ISPs: more VAS, less tax

Taxes account for a large portion of the costs for Brazilian companies..

In fact, when it comes to the tax burden on telecommunications, Brazil is among the countries that charge the most taxes on this activity, especially on Multimedia Communication Services (SCM) .

That's why VAS solutions for ISPs are crucial for the growth, transformation, and evolution of internet service providers' business models.

In this sense, a tax audit for ISPs is relevant to the management of the internet access provision business .

In fact, the significant benefits of a VAS solution for ISPs explain why internet providers seek VAS , especially because they allow for tax reduction.

The Brazilian tax burden on telecommunications

At the end of the first quarter of 2021, the National Telecommunications Agency (Anatel) released the international comparative study "Report on the level of tax burden and cost of a basket of services" .

According to the Anatel document (on pages 7, 17 and 18, reproduced here), we can see the voracious tax appetite of the Brazilian State. Between 2018 and 2020, there was a 0.4% increase in the ICMS tax burden . This raised the average rate for telecommunications services to 43.6%.

REPORT HIGHLIGHTS (page 7)

Brazil has relatively improved its position in the ranking of telecommunications services. In mobile telephony, Brazil was in 83rd position and rose to 63rd. In fixed broadband, Brazil improved from 75th to 45th position.
Brazil continues to have a relatively high tax burden on telecommunications compared to other countries. In mobile telephony, Brazil is among the top 5% of countries with the highest tax burden, and in fixed broadband, Brazil has the highest tariffs in the ITU ranking.
Brazil is the 6th largest mobile phone market in the world and the 5th largest national market for fixed broadband . China stands out, already holding 39% of the global fixed broadband market.
From 2019 to 2020, the ITU analysis showed a trend towards greater concentration of countries with lower tax burdens. Specifically, there was an increase in the percentage of countries with tax burdens between 0% and 10%, and a decrease in the percentage of countries with tax burdens between 10% and 20%. This shift in tax burden brackets occurred in both services: mobile telephony and fixed broadband.
From 2019 to 2020, the average tax burden in Brazil increased by 0.4%. This is due to two factors: i) an increase in the national average ICMS (state sales tax) of 0.22% due to a rate increase in one state, ii) a new weighting of states based on changes in the number of accesses. The average ad valorem tax burden on telecommunications for the Brazilian consumer is around 43.6%.
São Paulo holds 31.26% of the national telecommunications market, and Minas Gerais holds 9.62% . The remaining states account for approximately 60% of the national market.
The costs of service packages , both in mobile telephony and fixed broadband, remained practically unchanged , considering the data from 2018 and 2019.
There is a consistent decline in the prices of service baskets measured by the ITU, both in terms of GDP per capita and US dollars in purchasing power parity (PPP). This trend remains for the 2019 data, even with some changes in the ITU's service baskets. Current service baskets present services that better reflect the recent reality of users with an increased capacity for use.

tax audit for ISPs

Complexity of the tax burden for internet service providers.

To facilitate understanding of the complexity of the tax burden on ISPs and VAS solutions for internet service providers, we suggest watching the short videos that accountant Stanley Souza makes available on YouTube .

Just to illustrate our topic, here we provide video 06 – Which taxes should my provider pay .

VAS solutions for internet service providers to optimize the tax burden.

As we have already seen, VAS (value-added services) have lower taxation than SCM (multimedia communication services). Also, the Brazilian tax burden on telecommunications is one of the highest in the world .

Just to give an example, imagine that an internet service provider sells its service for R$ 100.00 . As a result, it pays state and federal taxes on that entire amount.

Now, watch the "magic" happen.

By adding a VAS (Value Added Service) benefit to the customer worth R$ 20.00 , and maintaining the R$ 100.00 , the provider will pay federal taxes on both services. However, at the state level (ICMS), it will only apply to R$ 80.00 .

In this way, it is possible to reduce the state tax amount by offering an SVA solution for ISPs within the internet provider's plans.

But be very careful. Consult your accountant or legal advisor to verify the rules and limits on permitted amounts to avoid tax problems.

VAS + tax audit for ISPs = effective tax planning

Above all, the main advantage of a tax audit for ISPs is to maximize the tax savings of VAS (Value Added Services) solutions for internet service providers.

And also, contribute to effective tax planning . Which, without a doubt, will make it possible to pay less taxes, increase the profitability of the business and improve profitability.

That's why the SVA (Value Added Services) combo for internet providers + tax audit for ISPs + tax planning is indispensable and so effective – efficiency and effectiveness at the same time – for the ISP business model.

How to choose a tax audit firm for an ISP?

Without a doubt, after so many arguments and information about the value and relevance of a tax audit for ISPs , it's easy to answer this question.

To choose a tax audit firm for an ISP, internet service provider managers should prioritize qualified companies and skilled professionals when hiring the service.

The focus should be on investing in quality and effectiveness. Undoubtedly, this is the right path to greater impact, better results, and lower costs when it comes to maximizing the benefits of VAS solutions for ISPs and increasing the profitability of internet service providers .