News and Business
Taxation of remittances for software licensing payments reviewed in Brazil
Brazilian Federal Revenue's new approach results from decisions issued in the Federal Supreme Court
Subjects
In the recently published Tax Inquiry Responses No. 75 and No. 107, the Brazilian Federal Revenue (RFB) expressed a new view of how taxation on foreign remittances to pay for software licensing should be levied. This review stems from the Federal Supreme Court’s (STF) rulings on Direct Unconstitutionality Actions (ADIs) No. 1,945 and No. 5,659 and Special Appeal (RE) No. 699,223, which determined that licenses for software use must be classified as services for the purpose of taxation.
In contrast to its earlier positions on the matter, the RFB now holds the view that such payments are subject to:
- Withholding Tax (IRRF) at a general rate of 15% (or 25% for payments to tax havens), as they are royalties;
- Employee Profit Participation Program (PIS) and Social Security Contribution (Cofins) taxes at a rate of 9.25%, considering the “intellectual effort involved in creating and maintaining the software”; and
- The Contribution Tax for Intervention in the Economic Domain (CIDE) at a rate of 10% for technical services, which is “applicable when updating to newer versions of the software itself, provided this does not result in additional licensing”.
For further information on this matter, please contact Mattos Filho’s Tax and Technology practice areas.
