Brazil issues withholding tax guidance on the importation of services

On March 22 2017, the Brazilian tax authorities (RFB) published Solução de Consulta No. 153/2017 (SC 153/2017), dated March 2 2017, confirming that the triggering event for the specified transaction taxes on the importation of services should be considered when the income becomes economically or legally available to the foreign creditor.

Among other taxes imposed by the Brazilian legislation on the importation of services, SC 153/2017 confirms the RFB's understanding of the triggering event for income withholding tax (WHT), contribution for the intervention of economic domain (CIDE) and social contributions referred to as PIS/COFINS. As per the relevant Brazilian laws, the triggering event for each of these taxes should be the payment, credit, delivery, employment or remittance of the funds. It should be noted that as CIDE should only be calculated monthly, and therefore the triggering event is only complete on the last day of the month in which this has incurred.

In the past, there were some discussions as to whether the reference to 'credit', could be taken to mean the mere accounting 'credit' in the Brazilian entity's accounting books and whether this would be sufficient to act as the triggering event for the relevant transaction taxes. Other opinions were that the tax should only be due upon actual payment/remittance abroad, with an additional alternative being that the triggering event should be considered to be the earlier of the payment being made or the obligation to make payment arising – whichever is the earliest.

Pursuant to SC 153/2017, this issue appears to be further clarified, with the RFB confirming that the triggering event should be when the creditor recognises the right to receive the amount, and not the mere registration of an accounting credit (e.g. provision or anticipated recognition of expenses). That is, the obligation of the Brazilian importer of services to pay such taxes should only arise when the foreign entity has actually the right to charge the Brazilian company in accordance with the conditions established on the agreement signed by the parties (which should materialise – in principle – after the rendering of the services). The focus of the RFB being on the income being economically or legally available to the foreign entity and having regard to the definition provided in the Brazilian tax legislation.

Although this document does not represent legal precedent, it does provide further support and guidance for Brazilian entities in relation to how the RFB is treating such arrangements from a transactional tax perspective and the timing for recognition of such taxes.

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