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| Fernando Giacobbo |
Mark Conomy |
The Brazilian tax authorities (RFB) issued
Solução de Consulta No. 154/2016 on November 18
2016, which states that payments in relation to the right to
duplicate and commercialise certain software should be subject
to Brazilian withholding tax (WHT).
Considering the particular facts of the taxpayer
consultation, the RFB considered that the contract between the
Brazilian 'reseller' and the foreign non-resident software
owner provided for two distinctive objectives, being the
commercialisation and distribution of software and the sale of
the product, accompanied by the licence to use the relevant
software. In this particular case, the ownership of the
relevant intellectual property was maintained by the foreign
entity abroad, and the source code of the software was not
transferred to the Brazilian entity.
The RFB provided that the license to distribute should not
be confused with the product that is to be distributed and that
the commercialisation of software under licence is sufficient
to characterise the payment as a 'royalty'. Similarly, the
licence to reproduce and commercialise the respective software
should not be confused with the right to use the software. The
latter only arising at the time the Brazilian entity produces
the copies that are on-sold to clients, which should be
considered a separate event from the payments due to be made by
the Brazilian entity under the original contract. For these
reasons, the RFB considered that the remuneration paid to the
foreign entity should be classified as a royalty, being a
payment for the right to reproduce software copies from a
master tape and resell to end users, who subsequently would
receive a licence to use the relevant software.
Once considered a royalty, WHT should be applicable.
However, in relation to Contribução de
Intervenção de Domínio Econômico
(CIDE), the Brazilian legislation provides a specific exemption
for remuneration related to the licence to use or right of
commercialisation of distribution of computer programs, except
where this involves the transfer of technology. Generally,
contracts involving software should only be characterised as
transferring technology where the source code is provided,
something that was not applicable in the present case.
In conclusion, the RFB considered that remittances abroad in
relation to the right to duplicate and commercialise software
based on a master copy provided by the owner, for resale to
clients that receive a licence to use the relevant software,
should be considered a royalty and therefore subject to
WHT.
It should be noted that this is not the first time the RFB
appear to have dealt with this issue. In 2008, the RFB issued
Solução de Divergência No. 27 of 2008,
which stated that remittances abroad in relation to the
acquisition or licence of rights of commercialisation of
software classified as 'off-the-shelf' should not be subject to
WHT or CIDE. No reference was made to this previous guidance
and therefore it remains to be seen how the new decision will
be interpreted in light of the earlier guidance.
Fernando Giacobbo (fernando.giacobbo@br.pwc.com)
and Mark Conomy (conomy.mark@pwc.com)
PwC
Tel: +55 11 3674-2582 and +55 11 3674-2519
Website: www.pwc.com.br