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Brazil: Brazil releases guidance on applying withholding tax on payments for software licences


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 ( and Mark Conomy (


Tel: +55 11 3674-2582 and +55 11 3674-2519


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