Compliance by Design and the ESG agenda

The global tax system—and the Brazilian system in particular—is undergoing an unprecedented transformation. The tax reform, which replaces five taxes with two (IBS and CBS) using the same tax base, a single tax rate, and a comprehensive credit system, promises to significantly reduce the legal friction that has burdened the country’s business environment for decades. However, more than just a change in tax rates and bases, this reform requires a profound overhaul of how companies interact with tax authorities, driven by technology and new governance paradigms. Tax planning, therefore, is no longer reactive but now requires a proactive and integrated approach from all areas of a corporation.

The immediate challenge for companies will be the coexistence of different non-cumulative tax systems during the transition period. The calculation of tax credits will now be linked to the payment of the tax in the previous stage, a process introduced by the split payment system. This mechanism, which ties the tax credit to the actual payment, will change companies’ cash flow, requiring sophisticated cash management. From now on, simulating tax scenarios will require not only legal expertise but also a detailed economic analysis of the entire production chain and the company’s competitive position in the market.

This internal evolution in Brazil is fully in line with what the Organization for Economic Cooperation and Development (OECD) advocates in its “Tax Administration 3.0” model. The overarching premise is clear: to build a taxpayer-focused system that minimizes friction and misunderstandings (seamless and frictionless). The goal is to achieve seamless and frictionless control and tax collection with as little human interference as possible, by integrating tax processes directly into organizations’ business workflows.

In this context, the concept of “compliance by design” is gaining significant traction. It involves building corporate systems in which tax compliance is built right into the programming from the outset. Direct integration between taxpayers’ activities and the government’s tax collection systems—such as the Federal Revenue Service and state finance departments—drastically reduces the need for manual filing of ancillary obligations. The less human intervention there is, the lower the risk of tax evasion, operational errors, and, consequently, tax assessments and liabilities. Brazil’s split payment system is a perfect example of this integration, operating in tandem with the financial system to consolidate information in real time.

In this context, the concept of “compliance by design” is gaining significant traction. It involves building corporate systems in which tax compliance is built right into the programming from the outset. Direct integration between taxpayers’ activities and the government’s tax collection systems—such as the Federal Revenue Service and state finance departments—drastically reduces the need for manual filing of ancillary obligations. The less human intervention there is, the lower the risk of tax evasion, operational errors, and, consequently, tax assessments and liabilities. Brazil’s split payment system is a perfect example of this integration, operating in tandem with the financial system to consolidate information in real time.

To achieve this level of excellence, technology and artificial intelligence (AI) will play central roles. Intelligent compliance software is already capable of performing predictive analytics, identifying errors in the fulfillment of obligations, generating audit reports, and mapping case law.

The Federal Revenue Service itself, through Administrative Order No. 647/2026, has regulated the use of predictive AI in tax audits. If the government is using big data to identify inconsistencies, taxpayers need to apply the same level of intelligence to justify their positions and proactively manage their risks.

The future of the relationship between tax authorities and taxpayers also necessarily depends on consensus. Cooperative compliance programs, such as Confia (Federal Revenue Service), Sintonia, and Nos Conformes (São Paulo State Department of Finance), offer incentives and rewards to companies that demonstrate good faith and transparency. As legal scholar Frederick Schauer rightly observes, the law should not be viewed solely from the perspective of punishment, but rather for its strong inductive nature, which is capable of shaping positive behavior.

Reducing litigation involves adopting tools such as advance tax rulings and self-correction. Transparent dialogue with tax authorities—even before a plan is implemented—which once seemed utopian, is now a necessary reality. Sitting down with prosecutors and auditors builds a relationship of trust that benefits everyone: the government gains greater certainty in tax collection, the company gains predictability and legal certainty, and society gains a more efficient business environment.

A proactive and strategic approach to tax governance, grounded in “compliance by design” and ESG principles, represents an irreversible paradigm shift. Companies that invest today in technology and transparency will not only mitigate their risks but also ensure their sustainability and competitiveness in the new global economic landscape.