Oil Royalties In Brazil: Between Financial Compensation And Taxation – A Legal And Economic Analysis

This article examines the use and distribution of oil royalties in Brazil, which shifted from being treated as financial compensation to taxation following the enactment of laws by the National Congress. This change in the treatment of royalties can be explained by public choice theory, which suggests that the actions of parliamentarians reflect the interests of pressure groups. Consequently, the compensation intended for entities where oil and gas exploration takes place began to be treated as a tax, benefiting all entities within the federation. Thus, it is reasonable to admit that the law's approval overlooked some essential characteristics of the nature of royalties by modifying their distribution to subnational entities that do not have oil exploration activities. Through a critical approach, the article suggests the need for a conceptual and normative review to ensure that royalties fulfil their role as a financial compensation mechanism without harming economic growth or fiscal transparency.