Brazil: Personal use of off-the-shelf software not subject to withholding tax

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazil: Personal use of off-the-shelf software not subject to withholding tax

Sponsored by

sponsored-firms-pwc.png
software-320 x 215

The federal Brazilian tax authority (RFB) has confirmed that off-the-shelf software acquired for personal use should not be subject to withholding tax.

The RFB published Solução de Consulta 6,014/2018 (dated August 17 2018) on September 12 2018, confirming their position that withholding tax should not apply on payments abroad in relation to off-the-shelf software that is acquired for personal use and does not relate to the commercialisation for third parties (SC 6,014/2018).

By way of background, SC 6,014/2018 is linked to a series of recent decisions concerning the treatment of payments made abroad to distribute and commercialise off-the-shelf software. This includes Declaratory Interpretative Act 7/2017, Solução de Divergência 18/2017 and Solução de Consulta 154/2016, which confirm the application of withholding tax in situations where payments abroad relate to the right to distribute or commercialise software. See previous article at: http://www.internationaltaxreview.com/Article/3784107/Brazil-Withholding-tax-rules-on-license-to-distribute-or-commercialise-software.html.

In the particular case in Solução de Consulta 6,014/2018, the off-the-shelf software acquired via a download from the internet was to be used for the taxpayer’s own use – more specifically, for students to have contact with educational instruments in a foreign language, and not relating to commercialisation or passing the software to third parties. It was not produced specifically for the particular educational facility but rather for any educational facility in the world.

While the manner in which the request by the taxpayer was presented created some administrative difficulties, the Brazilian tax authorities ultimately decided to review and decide on the question posed. It concluded that payments, credits or remittances to a non-resident in consideration for off-the-shelf software for personal use should not be classified within the concept of royalty and therefore subject to income withholding tax.

The decision distinguished the treatment between three types of contracts related to rights over computer programs, being:

  • Contracts for the license to use programs in Brazil;

  • Contracts for the license of the right to commercialise programs originated abroad; and

  • Contracts for the transfer of technology (generally considered transfer of the ‘source code’).

In the present case, SC 6,014 considered that the payment for off-the-shelf software for exclusive own use and not for commercialisation, should not be classified as remuneration for ownership rights (royalties) and therefore should not be subject to withholding tax. Further, the decision confirmed that the incidence of withholding tax does not depend on the media in which the off-the-shelf software is provided and licensed (i.e. discs, tapes, downloads, etc.).

While a Solução de Consulta does not represent law or a legal precedent, it does provide further support and guidance for Brazilian entities in relation to how the RFB are treating such arrangements.





giacobbo.jpg
Conomy

Fernando Giacobbo

Mark Conomy

Fernando Giacobbo (fernando.giacobbo@pwc.com) and Mark Conomy (conomy.mark@pwc.com)

PwC

Website: www.pwc.com.br

more across site & shared bottom lb ros

More from across our site

MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Baker McKenzie advised two of the member firms involved, while several advisers provided transaction counsel to US-based Grant Thornton Advisors
Foreign remittance requirements put additional administrative burden on Indian law firms and strain their relationship with foreign associate firms, according to practitioners
She will formally take over the leadership of the private client firm in July next year, succeeding the veteran Margaret Robertson
Gift this article