Banks, fintechs duel over taxation

In a report released on Monday, Febraban outlines arguments against fintechs paying a lower CSLL rate and advocates for tax fairness. The organization strongly criticizes Nubank. “It seems unjustifiable that the world’s most profitable financial institution (The Banker), with the highest valuation in the banking industry (Bloomberg), with bank explicitly in its name, 100 million accounts, the second-largest card portfolio, R$200 billion in personal loans, and 67% annual interest for households, pays a nominal CSLL rate lower than that of banks. This is very difficult to explain!” stated Febraban, which represents traditional banks.

When contacted, Nubank said it was pleased to see that Febraban finally acknowledged that fintechs already pay higher effective tax rates than large banks. However, it alleges that the federation uses biased arguments to harm competition and penalize fintechs that have promoted financial inclusion in Brazil.

“Nubank is proud to have spearheaded a transformation in the sector, increasing competition and access to credit, and reducing interest rates, always focused on offering the best products and services to its customers. We did this through an efficient business model, technological innovation, regulatory compliance, and paying an effective tax rate in Brazil of 34.1%, the highest among the largest companies in the sector,” it said in a statement.

For Febraban, banks and fintechs should pay the same tax rate. Fintechs argue that while banks’ nominal tax rate is higher, their effective tax rate is lower due to factors that reduce it. Febraban says that discussing the effective tax rate without showing the tax calculations is a failure to engage in the debate.

The study also responds to comments by Roberto Campos Neto, former president of Brazil’s Central Bank and current vice president and global head of public policy at Nubank, who said last week that fintechs have a higher effective tax rate than banks.