The Brazilian Federal Revenue Service (RFB), by means of
COSIT Conflict Resolution Ruling 18 (published on April 5), has
formalised its understanding that amounts paid, credited,
delivered, used or remitted to a party resident or domiciled
abroad as remuneration for the right to sell or distribute
software, for the domestic sale to end consumers that will
receive a license to use the software, falls under the concept
of royalties and are subject to the 15% WHT rate.
According to the RFB, it refers to the analysis of a
transaction model where (a) a party resident or domiciled
abroad, holder of a software, executes a license agreement for
the right to sell or distribute software with a Brazilian
company, and (b) the Brazilian company will subsequently sell
the licenses to use software to end-users in the domestic
territory. The RFB understands that there are two different
legal relationships in such transaction.
In this context, it is interesting to note that the
RFB’s analysis was limited to the license
agreement for the right to sell or distribute software between
the Brazilian and the foreign party, namely, the initial stage
of the transaction. Therefore, COSIT Conflict Resolution Ruling
18 did not address the taxation applicable to agreements for
the right to use the software.
In short, the RFB considered that, as a software is an
intellectual work, the acquisition of the right to explore it
by means of distribution or sale is characterised as a royalty,
pursuant to article 22, "d", of Law 4506/1964, whose remittance
abroad is subject to the WHT.
By means of this last statement, the RFB changed its
understanding – long consolidated by COSIT Conflict
Resolution Ruling 27/2008 – in the sense that
remittances abroad in payment for the acquisition or the
license of the rights to sell software under the multiple
copies mode ("off-the-shelf software") should not be subject to
the WHT and the Economic Intervention Contribution (CIDE).
It is noteworthy that COSIT Conflict Resolution Ruling
18/2017 maintained such agency’s previous
understanding regarding the applicability of the exemption from
the CIDE on the payments for the license to use and right to
sell or distribute computer programs when there is no transfer
of technology, in compliance with article 2, paragraph 1-A, of
Finally, it should be noted that COSIT Conflict Resolution
Ruling is binding on the RFB’s scope, and must be
complied with by federal tax authorities. Thus, companies that
fail to comply with such understanding might be subject to tax
assessments, that in any case can be discussed at the
administrative and judicial levels.
This is a highly complex and relevant matter to a wide range
of companies, and this new interpretation by the RFB can
generate insecurity (especially considering the changes of
understanding by the tax authorities themselves), contingencies
for businesses, and even impact other taxes in such
This article was prepared by Ricardo M. Debatin da
) and Gabriel Caldiron Rezende (firstname.lastname@example.org
), members of Machado Associados’
indirect tax team.