Brazil’s Senate approves bill regulating video-on-demand services

The Brazilian Senate’s Economic Affairs Committee (CAE) has approved Bill No. 2,331/2022, which regulates video-on-demand (VoD) services, platforms for sharing audiovisual content, and internet app-based television services. The new regulations will apply to companies that provide such services to Brazil-based users, regardless of where the company is headquartered or the location of its service infrastructure.

Services that fall outside the scope of the bill include:

• Those that offer audiovisual content on demand in a one-off or accessory manner (for example, providing videos in a secondary, complementary manner in relation to other image, text, or audio content);
• Simultaneously offering TV and radio channels or subscription TV channels (conditioned to the provisions of Law 12,485);
• Educational, journalistic, sports, and electronic gaming content;
• User-generated content that the provider does not pay for.

According to the approved wording, companies subject to the law must apply for accreditation with Brazil’s National Cinema Agency (Ancine) within 180 days of offering their services to Brazilian markets.

Condecine VoD

The bill amends Provisional Measure No. 2,228-1 to create taxable events in which the Contribution Tax for Developing the National Cinematographic Industry – known as the Condecine VoD – would be levied.

Therefore, Condecine VoD now applies to video-on-demand, audiovisual content-sharing platforms, and internet app-based television services. Companies providing these services will be responsible for paying the tax. Importantly, the bill does not limit the levy of Condecine VoD to services provided by Brazil-based companies.

The current version of Bill No. 2,331/2022 establishes that Condecine VoD will be collected annually at a maximum rate of 3%. The tax base will be calculated using the gross revenue stemming from providing the services above to the Brazilian market, including revenues from selling advertising slots within the audiovisual content provided via these services.

On the other hand, indirect taxes on these activities are excluded from the Condecine VoD tax base, as are commissions and profit-sharing amounts due to partners who carry out complementary activities (marketing, customer service, billing, collection), and secondary provision by companies that are not responsible for cataloging, reselling, or distributing the service.

Condecine VoD will have a progressive tax rate, which varies according to the income the company earns from the services subject to the tax. Companies with annual turnover above BRL 96 million will be subject to a 3% rate, while revenues between BRL 4.8 million and BRL 96 million will be subject to a 1.5% rate. Annual revenues smaller than BRL 4.8 million will not be subject to the tax.

Condecine VoD deductions also exist, particularly to support local Brazilian productions. If at least half of a video-on-demand service, audiovisual content-sharing platform, or internet app-based television service’s catalog consists of Brazilian-made content, the service provider may be eligible for a 50% Condecine VoD reduction.

Furthermore, the bill expressly provides that a levy on so-called ‘Condecine Remittances’ (income from commercializing, acquiring, or importing cinematographic and videophonic works that are remitted abroad) will not apply to services subject to Condecine VoD when provided outside Brazil. This levy will also not apply to remittances abroad stemming from the secondary provision of audiovisual content by companies not responsible for the catalog.

Brazilian-made content

Bill No. 2,331/2022 establishes that providers must make minimum quantities of Brazilian audiovisual content available to the Brazilian market. The numbers depend on the total number of works made available in the catalog. For example, catalogs with at least 2,000 works must have at least 100 Brazilian-made works, while those with at least 7,000 works must have at least 300 Brazilian-made ones.

Penalties

Ancine will be the authority responsible for supervising, regulating, and enforcing the obligations set out in the bill. Failure to comply with such obligations may result in an official warning, a fine between BRL 10,000 and BRL 50 million per violation, and the cancellation of Ancine’s accreditation, among other penalties.

The bill is now due to proceed to Brazil’s House of Representatives for further review unless there is an appeal in the Senate for a plenary vote.

For more information on the topic, please contact Mattos Filho’s Entertainment, Technology, and Tax practice areas.