Cooperatives get important recognition in Brazilian Constitution

The Brazilian Parliament approved a constitutional amendment to revamp the country’s taxation system, and, within it, there is an important recognition of the special characteristics of cooperatives as well as of their importance to the economic and social development of the nation.

The new text foresees a specific taxation system for cooperatives and allows them to choose between that or the general taxation rules. So, even though there will be a specific tax regime for cooperatives, it will not be mandatory, allowing individual cooperatives to opt for the solution that is more suitable for their specific business model. Equally important, the new text provides a definition of “cooperative transactions” and complementary law will define the instances when these transactions are not taxable.

This concept of “cooperative transaction” (or “cooperative act” in a more literal translation of the Portuguese “ato cooperativo”) was already enshrined in the country’s Cooperative Law from 1971 and is now strengthen by a constitutional provision. It includes the transactions between cooperatives and their members (e.g., the sale of products by a member to the cooperative) and between cooperatives that are working in a group to fulfill joint objectives.

The reasoning is that these cooperative transactions are different from commercial transactions because they have a mutualistic scope and, therefore, they should have a different tax regime, including tax exemptions, to ensure a level-playing field for cooperatives in terms of tax justice and competition.

This is a very significant development. Not many countries recognize the importance of cooperatives for the economic and social development of the nation at a constitutional level. Having a constitutional provision reflects the importance given to the cooperative movement in the country.

In addition, this amendment is not a mere political statement of good intentions towards cooperatives with no practical consequences, like so many others we see. This is a substantial provision with important consequences in the daily operations of thousands of cooperatives in Brazil. I am sure it will help the growth and development of the cooperative movement in years to come.

This amazing accomplishment was possible thanks to the advocacy efforts of the cooperative movement, led by OCB, the Organization of Brazilian Cooperatives. It is an excellent example of how cooperatives can positively influence policymakers and reach substantial, practical policy results for their benefit.

OCB coordinated a large-scale campaign for several years, that included mobilizing several members of Parliament; creating and disseminating informational materials to be used by cooperatives and other organizations; actively participating in the policymaking process, providing inputs at policy and technical levels; organizing and participating in debates and events; and many more. This advocacy campaign should, thus, be analyzed in-depth and presented as a case study for the whole cooperative movement worldwide. I am certain that this example will be useful and valuable in many countries and in various policy contexts.