Brazil is Handing Out Generous Incentives for Data Centers, But What it Stands to Gain is Still Unclear

Laís Martins is a fellow at Tech Policy Press.

In early May, Brazil's Finance Minister Fernando Haddad toured Silicon Valley with a clear pitch for executives in Palo Alto: set up your data centers in Brazil, and we will give you generous tax breaks and incentives.

Haddad took with him what has become known as the national policy on data centers—a package of policy measures that has been in the works for months, led by the Finance Ministry and the Ministry of Development, Industry, Commerce and Services. While Silicon Valley executives have seen firsthand what this policy looks like, it has yet to be presented in Brazil.

According to authorities, including Haddad himself, the policy creates a special tax regime for data centers, under which investments needed to set up operations would be exempt from federal taxes. This would mean scrapping import taxes on equipment needed to power data centers and zeroing local taxes to make Brazil more appealing for foreign investors.

The problem is that, so far, the government hasn't been able to show what Brazil stands to gain from this effort to lure investors. Over the past few weeks, as a reporter for The Intercept Brasil, I've spoken to dozens of people in civil society, companies, academia, and government officials. There is a shared sense that something is missing from the equation.

The Brazilian government has been using a big number to back up the plan: enacting this policy would unlock R$2 trillion (around US$356 billion) in investments over 10 years. I asked the Finance and Development Ministries how they came to this number. They did not answer. They said the policy was not ready and was still being discussed. This happened while Haddad was in Palo Alto showing this exact policy to tech executives.

Clean energy is up for grabs

Part of the pitch to have Brazil host data centers is the country's availability of clean energy. In Brazil, 84% of our energy matrix comes from renewable sources—which makes the country appealing to an industry that is at headwinds with an energy supply issue. While United States’ President Donald Trump has considered using coal to supply power to the data center sector in the United States, Brazil has the availability to take up such projects.

Brazil's advantageous position when it comes to energy has enabled the government to speak of “sustainable AI development.” One of the trade-offs Brazil is allegedly expecting from companies is that they meet a series of sustainability criteria in order to be eligible for the exemptions and tax breaks. The problem is that these criteria were probably developed without the involvement of the Environmental Ministry. As I've reported in The Intercept, this crucial ministry has been sidelined from the meetings where the national policy was discussed.

“Data centers’ implementation cannot be guided exclusively by economic interests and under the logic of attracting investments at any cost. On the contrary, it is urgent that protecting nature is at the center of any discussion on the topic,” said Julia Catão Dias, lawyer and coordinator of the Responsible and Sustainable Consumption program at the Brazilian Institute for Consumer Defense, Idec.

Given the Environmental Ministry's absence from the discussions, I was also not surprised when the government failed to answer my question about whether any environmental impact assessments had been conducted before this policy was launched.

The government has also used other commonplace arguments to justify this aggressive surrendering policy: that data centers will generate jobs and that states and municipalities will benefit from them. But it seems that the government has failed to acknowledge the experiences of other countries ahead in the data center development timeframe.

In the United States, for example, employment numbers have shown that data centers don't generate as many jobs as expected. While a larger workforce is needed to build these structures, the number shrinks when it comes to the operation of data centers. In Abilene, Texas, around 1,500 people are building Stargate's first data center. But after it is completed, only 100 full-time employees will work at the facility, according to a Wall Street Journal report from February.

The US also offers a word of caution when it comes to tax revenue. A report from Good Jobs First, a non-profit corporate subsidiaries watchdog, has found that at least 10 states have already lost more than US$100 million per year in tax revenue to data centers. The report recommends a drastic measure: that states cancel data center tax exemptions immediately.

Where does Brazil's national sovereignty stand?

Over the past year, as Big Tech leaders have capitulated to Trump, Brazilian President Lula has emphasized the idea of Brazil's digital sovereignty, in line with movements in other countries. In early May, OpenAI announced that it would deliver “democratic AI” to countries around the world by helping them develop AI infrastructure. Ironically, the company said it believes that “partnering closely with the US government is the best way to advance democratic AI.”

More than ever, countries around the world—particularly in the Global South— need to take digital sovereignty seriously. Yet Brazil’s national policy on data centers seems to move the country further away from true sovereignty, deepening its dependence on Silicon Valley companies. As it stands, the policy is designed to attract investment precisely from Big Tech companies, without creating the conditions for domestic companies to compete on equal footing.

“We support building data centers, but what are the parameters being followed? Is it merely to have Big Tech building here, or are we looking to have a more independent approach of fostering infrastructure for Brazilian universities or Brazilian companies?” said José Renato Laranjeira de Pereira, co-founder of Lapin, the Laboratory of Public Policy and Internet. Pereira is also a PhD candidate at the Bonn Sustainable AI Lab at the University of Bonn in Germany.

“It is important to have what we have been calling sovereignty to decrease dependency on foreign actors, but this needs parameters. This path of merely giving fiscal incentives for companies to build here is not, to me, a way of pursuing this. It's not a form of creating independence, neither technical nor infrastructural,” said Pereira.

Based on what is known so far, as part of the national policy, companies could be obliged to contribute up to 8% of their gross revenues to a public fund that aims to foster domestic technological development. Another trade-off is that data centers may have to reserve 10% of their processing capacities for the domestic sector—a rule that could be technically complicated to enforce.

But even such trade-offs pale compared to how much Brazil is giving up for foreign companies. Although the package is generous, it isn't enough. As part of his Silicon Valley tour, Haddad heard from data center representatives that tax breaks are not sufficient to lure investors. They want policies that foster investment, a clear portfolio of the available energetic resources, and a flexible and stable legal framework for businesses.

It is worth noting that, in 2024, when Brazil's AI Bill was being discussed, the data center sector opposed it. They particularly requested the removal of a provision that ensures payment for copyright holders whose work is used to train AI models.

Brazil's national data center policy is set to be submitted to Congress in the coming weeks. But based on what is known so far, it appears to be, above all, an open invitation for foreign companies to set up their data center operations in Brazil— tapping into its finite natural resources, without giving much in return.