Brazil tax reform introduces split payment and RAD mechanisms

Brazil's tax reform is introducing two key mechanisms: Recolhimento pelo Adquirente (RAD) and split payment. These systems aim to automate the collection of the Imposto sobre Bens e Serviços (IBS) and the Contribuição Social sobre Bens e Serviços (CBS).

Under the split payment model, taxes are segregated at the moment of financial settlement, with the portion due to the government being directed immediately to the Treasury. This process is expected to begin in a phased manner starting in March 2027, initially as an optional B2B operation. While fintechs, banks, and payment infrastructure companies must adapt their systems, many businesses still face uncertainty regarding practical implementation.

Complexity arises in scenarios involving sales cancellations or product returns. If a sale is undone after the tax has already been segregated via split payment, the tax reform provides rules for returning those funds to the seller. The speed and method of this recovery—whether through cash transfer or tax credits—depend on whether the buyer has already utilized the credit generated by the original transaction.