News : Brazil Congress Labor Discussions Positive for CRM/BPOs
Sao Paulo, Brazil & New York, USA, July 23, 2015 -- Fitch Ratings anticipates a net positive impact from current Brazilian Congress discussions related to new labor rules and a reduction in the tax-incentive program for Customer Relationship Management (CRM) and Business Processing Outsourcing (BPO) companies.
A more robust and favorable regulatory framework for third-party providers should benefit the companies in the medium term.
Still, the Brazilian federal government is discussing changes to the Brasil Maior tax-incentive program, which would have a moderately negative impact on CRM/BPO companies' cash flow. The program, implemented in 2012, exchanged social security taxes, representing 20% of payroll, for an additional 2% tax on domestic sales of CRM/BPO companies, which aided their EBITDA generation.
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The federal government proposes to raise the tax to 3% from 2%. Fitch expects discussions in the Upper House to be concluded in the second half of 2015 and this measure to be effective in early 2016. Despite having contracts with automatic pass-through clauses, some price renegotiations may occur as CRM/BPO clients may be reluctant to increase costs given the weak economic environment and overall cost structure adjustments.
The lack of specific labor legislation for third party services has weighed on CRM/BPO companies. Currently, companies are not allowed to outsource core activities in Brazil, although this rule does not specify which services are considered core or non-core. In addition, a legal dispute initiated by the outsourced employee may include not only the CRM/BPO operator, but also the company that hired the service. The lack of a clear regulation has prevented some companies from outsourcing services due to the high risk of labor litigation.
Posted by Veronica Silva Cusi, news correspondent
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About Fitch Ratings:
Fitch Ratings Inc. is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's, and the three are commonly known as the "Big Three credit rating agencies".
Published: Friday, July 24, 2015
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