The Resolution of Conflicting Opinions (RC COSIT) # 99004, dated April 15, 2019, published in the Official Gazette dated April 24, reaffirmed the understanding from IRS that has been applying since April 5, 2017, when it published the RC COSIT # 18/2017, reforming the RC COSIT # 27/2008, and also as a result of publication of RC COSIT # 342/2017 on June 28 in the same year. The subject analyzed is the taxation by Withholding Income Tax, CIDE, PIS and COFINS in the payment, credit, delivery, employment or remittance abroad, on acquisition of software license for marketing or distribution, being the issue defined by COSIT as follow:
a) Withholding Income Tax (IRRF)
The amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad in consideration for the right to market or distribute software for resale to the end consumer, which will receive a license to use the software, fall within the concept of royalties and are subject to the Withholding Income Tax (IRRF) at the rate of 15% (fifteen percent) (1).
b) Contribution of Intervention in the Economic Domain - CIDE
The remuneration for license of use or of rights for marketing or distribution of computer program does not suffer the incidence of CIDE, except when they involve technology transfer.
c) Contribution to the Financing of Social Security – Cofins-Import
The amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad for royalties, as a result of the right to market software, shall not be subject to Cofins-Import, provided that these amounts are broken down in the documentation that supports the transaction, except for the incidence under possible amounts related to hired services.
d) Contribution to PIS/Pasep-Import
The amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad for royalties, as a result of the right to market software, do not suffer the levy of the Contribution to PIS/Pasep-Import, provided that these amounts are broken down in the documentation that supports the transaction, except for the incidence under possible values related to hired services.
In the event of a tax treaty to avoid double taxation, it should be noted that the rate of Withholding Income Tax will be that determined in the treaty, being a maximum of 10% in the case of treaties between Brazil and the following jurisdictions: South Africa, Austria, Belgium, Spain, Finland, France, Israel, Japan and Turkey, under Article 12 (Article 11 for Japan), considering that Law 9.610/98 gives to computer programs the characteristic of intellectual property, determining the legal nature of royalties to related payments .
Also regarding software, prevailed the change of understanding from IRS manifested in the RC COSIT # 18/2017, confirming the incidence of Withholding Income Tax with the focus on the consideration of software license for marketing or distribution, abandoning the previous orientation, from RC COSIT # 27/2008, which concluded by the non-incidence of Withholding Income Tax for so-called "off-the-shelf software".
As for RC COSIT # 27/2008, incidentally, it is curious to note that it was excluded from the system of rules of the website of the IRS, as if it had never existed. Nevertheless, we found the summary in another IRS link. We reproduce the wording below and then the link to its content, except that the search was made on April 24, 2019, when this text was produced:
SUBJECT: Withholding Income Tax - IRRF
SUMMARY: they are not subject to the incidence of Withholding Income Tax (IRRF) nor to the incidence of the Contribution of Intervention in the Economic Domain (CIDE) the amounts remitted abroad in payment for the acquisition or license of marketing rights of software under the modality of multiple copies ("off-the-shelf software"). (free translation)
Because it is an interpretative rule, it is our understanding that companies that did not withhold income tax until April 5, 2017 and may be suffer tax assessment from IRS for remittances made up to this date, have good legal arguments to defense, using the previous understanding issued by RC COSIT # 27/2008, based on article 100 of the National Tax Code and the Principle of Legal Certainty.
It is also worth mentioning the Interpretative Declaratory Act (ADI) # 07/17, published on 12/26/17, confirming the understanding of RC COSIT # 18, dated 03/27/17, in the sense that the amounts paid, credited , delivered, employed or remitted to a resident or domiciled abroad in consideration for the right to market or distribute software, for resale to end consumer, which will receive a license to use the software, are subject to the concept of royalties and are subject to Withholding Income Tax of 15%, or 25% in the case of a country listed as Tax Haven (2).
With regard to off-the-shelf software for own use, the COSIT has not yet manifested itself, most likely due to the lack of divergence, but the IRS of the 6th Tax Region, also in Answer to Advance Tax Ruling Request, # 6014, published on September 12, 2018, stated that the amounts paid, credited, delivered, employed or remitted to a resident or domiciled abroad in consideration for the licensing of off-the-shelf software, for the exclusive use of the acquirer himself, who will not market it to third parties, are not subject to the incidence of Withholding Income Tax, linking the answer to RC COSIT # 18/2017 itself.
In any case (marketing or own use), it was maintained the understanding regarding the non-incidence of CIDE on the remuneration of license to use computer programs when there is no technology transfer.
Regarding PIS-Import and COFINS-Import, also in any case, it is worth noting that there will only be incidence under possible values related to hired services, being of fundamental importance that the values of royalties are detailed in the documentation that supports the transaction, under penalty of taxation by PIS and COFINS under total amount paid, credited, delivered, employed or remitted to a resident or domiciled abroad.
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(1) The case refers to a country that is not included in the list of tax haven jurisdiction (black or grey list), in which the rate would be 25%
(2) It is here the exception highlighted in the paragraph dealing with the rates established in Tax Treaties.
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REGINALDO ANGELO DOS SANTOS - Lawyer with University Extension in Federal, State and Municipal Taxes from IBDT / USP; Specialist in Tax Law from PUC / SP and an MBA in Business Law from FGV Law School. He held management legal & tax positions in national and multinational companies. Partner at T4B - Tax For Business and Independent Tax Lawyer at RAS Corporate Tax Law.
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