In September 2011, Brazil raised the rates of the Industrial Product Tax (IPI), a value-added tax imposed on industrial products, by 30 percent with respect to automobiles, Japan's Ministry of Economy, Trade and Industry (METI) said. In October 2012, the country introduced a tax advantage scheme named "Inovar-Auto," which allows automobile manufacturers to offset their taxable IPI depending on the ratio of local contents used in manufacturing automobiles. The tax break is available to companies that meet certain requirements, such as carrying out certain manufacturing processes inside Brazil, and investing in research and development in the country.
Brazil also offers tax advantages in the information technology sector for companies that carry out certain production and investment activities within Brazil.
METI said that these measures unfairly favor domestic producers and appear to be inconsistent with certain articles of the General Agreement on Tariffs and Trade (GATT) 1994 and other WTO rules.
The Ministry also noted that Brazil offers tax advantages to exporting companies under certain conditions. It said that this measure is in effect an export subsidy, which is prohibited under the WTO agreement.
Japan and Brazil now have 60 days to resolve the dispute through bilateral consultations. If no resolution is found in that time the complainant may request adjudication by a WTO panel.